Do you dream of mortgage-free living? Owning your own property with no rent or mortgage to pay? I get it – living the dream right?

When Can I Pay Off My Mortgage?

We’re making some big changes in the AoF household, however I’m not ready to talk about them yet, but I will update you at some point soon. But it involves housing, jobs and basically the whole nine yards. As part of this I’ve been doing some serious house financing calculations. Whilst there are a ton of good mortgage calculators out there on the internet I’ve not quite find the right one to give me what I need. I also think that some of them are unnecessarily complicated.

So what do I want to do?

• I want to calculate the time until I finish paying off my mortgage.
• And I want to look at how that time changes under different property prices and different monthly repayment amounts.

Easy.

Progress to FIRE

It occurs to me that I can’t be the only one wanting to do this. I think there are probably two main groups of people wanting this kind of information.

1. Those pursuing financial independence (FI). If you are on your way to FIRE then it’s clearly ideal to have a paid off mortgage. One of the key methods to increase success of a FIRE strategy is to reduce your non-discretionary spend so that you can ratchet down your spend during periods of market stress. So paying off your mortgage is a key component of that strategy. Note that I’m not saying you should repay your mortgage, that will depend on your personal circumstances, but if you are, then this tool will be useful to you.
2. For real estate investors looking to purchase new properties with leverage (i.e. a mortgage). Understanding the length of time until you pay off a mortgage on a rental property can be an important component of your financial strategy to invest in further properties, or in assessing the viability of a new purchase.

So let’s take a look at some of the results.

Mortgage Tool

You can download a free copy of the tool here.

The data you need for the tool is simple. Just the down payment for the house if it’s a new purchase, or the current equity in the house if it’s a current mortgage. The current equity is simply the value of the house less any mortgage outstanding, and you can get outstanding amount from your latest mortgage statement.

If you pay tax and insurance through your monthly payments then you need to know that, and it will be on your statement. If you pay these separately then simply set it to zero.

Finally you need the mortgage interest rate. The data entry cells are show below. Simple huh?

Let’s look at a simple example.

Example House Purchase

Suppose you have a down payment of $20,000 and you anticipate annual tax and insurance costs of $3,000. We will look at a range of properties with prices $175k, $200k, $225k and $250k.

We will also look at a range of monthly repayment amounts of $1,339, $1,500 and $1,750 per month. You can see the results below, where the orange cells can receive user input.

The results are in a grid. You can see that for a $175k house and a monthly repayment of $1,339 the mortgage will be paid off in 15.7 years. (Top left number in the grid).

Or you could opt to over-pay with $1,750 a month. You can see that the mortgage will now be paid off in 10.4 years.

But if you purchased a $250k house then the term will lengthen to 17.4 years.

I’ve even put in a groovy little chart to show things graphically.

Do you like this post? If not, then let me know. If you do, then share it with others. It’ll promote world peace – I promise!

Another Example

Let’s now increase the interest rate to 4.5%

I’ve taken exactly the same data but increased the interest rate to 4.5%. You can see that all the times have increased, but not equally. The short time periods have increased by a little and the long time periods have increased by a lot. [This is a phenomenon called duration. Interest rate changes have a disproportionately large impact on things that last for a long time.]

In the spreadsheet you can change all the monthly payments, and also change the house prices so it’s really easy for you to model your own scenarios.

If you want a copy of the free spreadsheet then please sign up for email updates for the blog. I promise not to spam you, and quite honestly I think you’ll be disappointed by the paucity of my communication. If you are an existing email subscriber then I’ll try and figure out a way to send you the link.

Looking for any other articles to read? Why not try Travel Hacking actuary on FIRE style or Beware the FANGs of Passive Investing (which is still relevant today).

What did you think? Would this mortgage calculator be a useful tool for you? Why do you need to calculate how many years are left on your mortgage – let me know, I’m interested. Are you a real estate investor? Would you be able to make use of this?