Let’s say you have the following mortgage:
Mortgage Details:
- Loan Amount: $350,000
- Interest Rate: 4.5%
- Original Term: 30 years (360 months)
- Monthly Payment (without extra taxes, insurance, and so on):
**$1,773.40**
Impact of Extra $250/Month on Mortgage Term:
When you make $250 extra payments every month (that’s $8.33 per day), more of the principal gets paid off faster, reducing the loan term.
- New Payoff Time: 23.3 years (280 months)
- Time Saved: 6 years and 8 months
By adding this small extra amount, you’ll pay off the mortgage early and save a significant amount in interest payments.
What If You Invested Your Monthly Payment After Payoff?
Since you will have paid off the mortgage during the twenty-third year, you’ll have almost 7 years remaining until the original 30-year term ends. During these years, instead of paying the mortgage, you invest the amount you would have been paying each month ($1,773.40) in the stock market.
Investment Assumptions:
- Monthly Investment: $1,773.40
- Investment Period: 6.7 years (80 months)
- Annual Market Return: 7% (average stock market return)
- Compounded Monthly
Let’s calculate the future value of these investments.
Future Value of Investments After Mortgage Payoff
By investing $1,773.40/month for 80 months at an annual return of 7%, your investment could grow to: $178,769
Summary
- Mortgage Payoff:
- New payoff time: 23.3 years (saving 6 years and 8 months).
- Investment Growth:
- By investing $1,773.40/month for the remaining 6.7 years at 7% annual return, you could accumulate $178,769 by the original end of the mortgage term.
This strategy accelerates your mortgage payoff and provides you with a solid investment fund by the 30-year mark.
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