Homeowners and Future Homeowners: I Just Made an Awesome Tool For You

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Let me tell you a quick story…

I closed on my house at the end of 2014 after months of looking and going back and forth with the bank on the short sale that we bought.

When I signed the closing paperwork, the bank that was giving me the loan gave me a copy of something called a mortgage amortization schedule, a document that shows how much principle and interest you pay each month if you pay your loan off on schedule.

I noticed something shocking: despite the fact that I got an amazing deal on my house and was going to buy it for a mere $105,000, I was going to pay almost $58,000 in interest to the bank.

Here’s what my mortgage amortization schedule looks like. The second photo shows the total interest amount:

That’s more than half the price of the house. Heck, that’s more than I make in a year at my boring office job. Do I really want to work for more than a year just to pay interest to the bank?

So I went home and I created my own mortgage amortization schedule in Google Sheets and looked at what would happen if I paid $100 dollars extra each month on the principal. It turns out with this one change I would pay the mortgage off more than 10 years earlier and save $22,000 on interest.

I turned my sheet into a sophisticated plug-and-chug template than anyone can use to see the impact of paying extra on their mortgage.

I’m going to give you this sheet, which can easily save you tens of thousands of dollars, for free, and I’m going to show you exactly how to use it in this post.

Getting Your Copy and Saving it To Your Google Drive

Enter your email below and I’ll send you a copy of the Google Sheet file:

Once you have the document, you’l need to click “File” and then “Make a copy…”

This will let you save it to your own Google Drive under a name you choose.

I recommend saving two copies, one to use and one to have as a back up in case you accidentally mess up one of the formulas

Entering Your Loan Information

Once you’ve saved a copy, you want to head over to the second tab, the one named “Original Loan”

Here you’ll need to enter five simple pieces of information into the cells highlighted in yellow:

1️⃣ Starting Principal: Enter the total amount that you borrowed from the bank

2️⃣ Interest Rate: Enter your interest rate expressed as a percentage (e.g. for 4.25% enter 4.25 not .0425). Right now this sheet only works for fixed rate mortgages and not adjustable rate mortgages. If you haven’t bought a house yet, I suggest a fixed rate mortgage anyway.

3️⃣ Monthly Principal and Interest: This is not quite the same as your total monthly payment, which might include taxes and insurance. To find this number, you can try logging in to your account on the bank’s website, call the bank directly, or consulting the mortgage amortization schedule they provided you when you closed on the house

4️⃣ Starting Year: Enter the year that you first started making payments.

5️⃣ Starting Month: Enter the month you started making payments. Keep in mind or these last two that the month that you closed probably isn’t the month of your first payment. Check your bank records to see for sure when you actually made your first payment.

Once you enter all the necessary information, the sheet will magically go from being blank to populated with an entire mortgage amortization schedule:

It works like magic.

The mortgage amortization schedule that you get here should match the one that you received when you closed on your house.

Side note: The numbers you see in the examples do represent my real situation. I’m primarily doing this because I know that the numbers represent a real mortgage and don’t have to spend time finding numbers that work.

But I also think it’s good for people to talk to each other about their financial details. We don’t learn if we keep everything secret from each other. Yes, there obviously should be boundaries, but I would argue that the boundaries our culture has adopted are overly restrictive.

One thing that you may notice is that in the second row where it is giving you the totals, it says 30.1 instead of 30 for a 30 year mortgage and 15.1 instead of 15 for a 15 year loan:

This is because after your last payment, there is always a balance of a few extra dollars. There’s just no way for a bank to come up with a schedule that bring the balance exactly down to zero while making equal payments each month. I think this is because of rounding. In order to get the loan down to zero after 360 equal payments, you would need to be able to pay fractions of a cent.

My file treats this final balance of a few dollars as a 361st month (or a 181st month on a 15 year loan). The mortgage amortization schedule I got from the bank just lists it as a remaining balance after the 360th payment:

This balance will likely be a couple of dollars off from the mortgage amortization schedule your bank provided, it all depends on if they round fractions of a cent the same way that Google Sheets does.

With just this information entered, you can already see a couple of interesting things. First is the troubling fact that I mentioned earlier that you are likely paying a shocking amount of interest:

But you’ll also be able to see the mechanics of how a mortgage gets paid off. You’ll notice that in the beginning, you are paying mostly interest:

But with each payment, you pay some principal, meaning the amount of interest you pay next month will go down and the amount of principal you pay will go up.

This effect is minor at first, but it starts to snowball to the point where in the last few months you are paying mostly principal and hardly any interest:

This is actually the key insight as to why paying extra each month is so valuable.

Each time you make an extra payment towards the principle, you reduce the amount of every subsequent interest payment. Not only that, but you increase the amount of every subsequent principal payment, which in turn reduces every subsequent interest payment…

This is the power of compound interest in action. If you have a 4% interest rate on your loan, then your extra payments are essentially investments earning a 4% compounded rate of return.

So how much can you save by paying extra? Let’s look at some examples:

Making a Plan For Paying Extra

Next, head over to the tab called “Plan 1”:

You’ll notice that most of it is already filled in based on information that you already entered:

All you need to do here is to fill out the cells in green and grey.

The Cells in Green:

1️⃣ Extra Principal: This is where you can choose an amount to pay extra towards your mortgage each month.

2️⃣ Starting Year: Enter the year when you will make the first extra payment.

3️⃣ Starting Month: The month when you will make the first extra payment.

The Cells in Grey:

1️⃣ Include in Summary: Put the letter “Y” in this column when you are ready to have it appear in the “summary” tab.

2️⃣ Date Range: This is just a label for the summary tab. I usually put a date range here. For instance, I started paying $100 extra in January of 2015 and kept that pace up through March of 2018. So in this cell I put “2015.01–2018.3”

By filling out the cells in green, you’ll be able to see the effect of paying extra on your mortgage. By filling out the cells in grey, you’ll be able to compare your plan to the original loan on the summary tab:

The above image is how my summary tab looks right now. Here’s what the summary tab includes:

The first column (column A)lets you know which tab that row is pulling information from
The second column (column B) is the label that you gave the plan
The green column (column C) shows how much extra you are paying per month
The first blue column (column D) is your expected payoff year (all columns that deal with years are blue)
Column E shows the expected number of years it will take to pay off your mortgage (from the day you started paying)
Column F shows how many years different this is from the plan above it
Column G shows how many years different it is from the terms of the original loan
The first purple column (column H) shows how much total interest you are expected to pay if you keep up your pace.
Column I shows how different this is from the plan above it
Column J shows how different it is from the original loan

Some notable highlights of the information it provides:

If I paid the minimum, I would pay off my loan in 2045, just over 30 years after I closed, and would have paid nearly $58,000 in interest
I’ve been paying at least $100 extra ever since my very first payment, this one change shaves 10 years and more than $20,000 off of the original loan.
I’ve increased the amount that I’ve been paying extra a couple of times, but that initial $100, both because it is the largest amount and because I started with it early, is by far the most impactful. Since every extra payment snowballs, the earlier you can start paying extra the better.
I also use this sheet to weigh the impact of hypothetical changes. You can see that I’ve labeled my plan 4 tab “Hypothetical Pace” and it shows the impact of contributing an extra $50 a month above what I’ve been doing, a move I’m about to pull the trigger on.
Once I pull the trigger on this move, I will have nearly cut the number of years and amount of interest I’m paying in half.

Paying Off Your Mortgage vs. Investing

This is a topic of lively debate in the personal finance space. If you have the money to pay extra on your mortgage each month, would you be better off investing?

The best argument for investing is that the stock market has historically provided a rate of return much higher than the interest rate on your loan. This means that you’re better off taking as long as possible to pay off your mortgage and investing the difference.

The best argument for paying off your mortgage early is that it is safer. The more liabilities that you have, the riskier your situation is. Losing your job is not nearly as scary when your house is paid off as it would be if you were on the hook for an enormous monthly payment.

The most profound single point that I’ve heard in the pay off your mortgage argument comes from popular personal finance author and radio host Dave Ramsey who asks this hypothetical question: if your house was paid off, would you take out a loan at 4% (or whatever the interest rate is on your mortgage) to invest in the stock market?

My answer is no. If you have a similar answer, paying off your mortgage is probably a good idea.

My Strategy

In all honesty, my approach is actually a hybrid that I call playing offense and defense.

Playing Defense

To me, “playing defense” means saving money. It means looking at how much I make from my regular 9–5 day job and making sure I’m spending less than that amount.

When I find a sustainable way to save, I automatically take that money and contribute it toward my house payment.

A couple of months ago, I cancelled a $30 monthly service and upped my extra principal payment from $100 to $130.

This month I turned to my friend who is knowledgeable about saving money on cell phones, and he helped my wife and I save $30 a month switching from Cricket Wireless to Red Pocket.

I’m also going to cancel Amazon Prime which will net me an additional $10 a month (and keep me from buying unnecessary stuff).

Finally, I switched from the Roth 401k at work to the traditional, netting me an extra $20 a month that I save in the form of lower taxes.

That’s $60 of ongoing savings each month, $10 of which is going to be diverted somewhere else, but $50 of which is going to help pay off my mortgage.

This is a strategy that I go into in more detail in my book on personal finance. Cutting your monthly expenses is powerful because although it takes some work up front, it takes no additional effort going forward. The savings are locked in over the long term.

Playing Offense

For me, playing offense means making more money.

Right now, I make money in a variety of places online, including Medium, YouTube, The Amazon Affiliate Program, and sales from by book.

This income is variable from month to month, and isn’t part of my budget.

This makes it not an ideal choice to use for extra mortgage payments since I don’t know how much it will be each month, and what I will owe in taxes.

My solution (for the time being) is to contribute this extra income to an IRA.

An IRA is a type of retirement account where you don’t have to pay taxes on your contributions (there are limits in terms of eligibility and contribution amounts). This means that as long as my side hustle income is below the IRA contribution limit, I can send all of it toward my IRA and not worry about the taxes

My preference for an IRA would be to open an account with Vanguard and invest in their total stock market index fund, VTSAX.

The problem is, VTSAX requires a minimum of $10,000 to get started.

If you don’t have $10,000, don’t worry, there is an elegant solution: Charles Schwab.

Charles Schwab has a total stock market index fund called SWTSX with no minimum investment and a microscopic .03% expense ratio.

Once you hit $10,000, you can either call Vanguard and have them move your account over to invest with VTSAX, or you can just keep rolling with Schwab and their rock-bottom expense ratio.

If you don’t know much about investing, don’t worry. In the last minute or so you’ve been exposed to some of the key points:

Broad based index funds like VTSAX, SWTSX, or FSTVX (Fidelity’s total stock market index fund) = Very Good
Low expense ratios = Very Good
Tax advantaged accounts like IRA’s, Roth IRA’s and 401(k)’s = Very Good

Here’s a couple more key points:

Trying to time the market = Very Bad
Picking individual stocks = Very Bad

So here, in one sentence, is a rock-solid investment strategy:

Invest as much as you can, as early as you can into low-cost, broad-based index funds, starting with tax advantaged accounts.

Yup, it’s that simple. Go online to Schwab, open an account, link your bank account, transfer some money, and invest it in SWTSX.

If you really want a deep dive, I strongly recommend the stock series on the blog of JL Collins. Everything you could want to know about investing written in a way anyone can understand.

Look at that! You got a tool that can help save you years and tens of thousands of dollars paying off your mortgage, an elegant solution to the classic question of whether you should pay off your mortgage early or invest, and a simple, step-by-step guide to setting up an elite investment strategy. This is a good day huh? 😄

If you haven’t already, make sure to go grab the Mortgage Payoff Tool for free here:

You can come back to this guide for the finer points of how to use it, and if you feel like it, you can check out some of my other writing on the topic of money:

How Millennials Can Actually Retire
A realistic guide for ditching 9–5, winning your freedom, and living the life of your dreams…medium.com

The Ultimate Guide to Money and Happiness
The logic behind spending less to become happiermedium.com

You can also check out my book, Personal Finance That Works For You: How to Build Wealth, Design Your Future, and Make Money While You Sleep, which is available exclusively on Amazon: