Are you facing retirement in a few years? Do you really want to be paying a mortgage when you retire? Here’s a plan that will allow you to be mortgage free when you retire. Let’s say you have recently obtained a mortgage and you plan to retire in 12 years. Let’s use our earlier example, but change the dates for simplicity. You started your mortgage in January of 2007. Its now November of 2009 and you want to have the mortgage paid off by November 2021, the month you plan on retiring. Using our earlier example, you see our mortgage balance at the end of October 2009 is $240,801.25. In order for the mortgage to be paid off by November of 2021, you will have to add a prepayment of $850.00 a month. The new monthly total will be $2,348.88 ($1,498.88 + $850.00)

Summary

Total interest if not prepaid $289,593.09

Total interest if prepaid $139,407.49

Total amount saved prepaying $150,187.98

Number of months saved prepaying 181

You have seen how much money you can save over the life of the mortgage. You may be hesitant to start prepaying if you plan to move in a few years. You may think you will not reap the benefits of the savings. If you plan to move in a few years, think of prepaying as a forced savings plan for the next house. Using our $250,000 loan again, at the end of 5 years you would still owe $232,635.64. But if you prepaid $250.00 a month, at the end of 5 years you would only owe $215,193.15! You would then have an extra $17,442.49 in equity to put towards your new home. Remember that $17,442.49 in equity is built-up tax-free. If you were to deposit $250 a month for 60 months into a bank, you would have to earn about 6% in taxable interest to have $17,400. Is your bank currently paying over 6% on your money? Can you earn 6% on an investment as RISK FREE as prepaying your mortgage? Think about it. Prepaying for your next home can be a safe, painless and efficient way of saving.