How to Use Your Annual Raise to Pay Off Your Mortgage Early

Do you get a raise each year? Let your raises help you pay off your mortgage in about one-third of the time or less. Here's how:

Difficulty: Easy

Instructions

Things You'll Need:

• Discipline
• Patience
• Time

1. Assumptions
   
   My first assumption is that you receive a raise each year at your place of employment. For my wife and me, we generally receive at least a cost of living raise between 2%-3% each year.
   
   My second assumption is that you are able to live comfortably with your current household budget or you will soon get to a point where you can live without relying heavily on your annual increase in income.

2. What To Do
   
   If you are not already doing so, pay $50-$100 or more each month in additional principal on your mortgage. Perhaps you can do even more. This will give you a headstart.
   
   When you receive your raise, take the full amount, or as much as possible, and add it to your additional principal also. For example, suppose your monthly mortgage payment is $1000. You stretch your budget so that you can add an additional $100 to your monthly payment. Now, let's assume your raise is a net $100 monthly increase this year. When you apply that $100 to your additional principal, you are now paying $200 additional principal to your monthly mortgage payment.
   
   In this scenario, you will apply $2400 in additional principal payments for the next year. When you receive your annual raise the next year, apply that to your principal as well. Now you are paying $300 in additional principal each month. Do this each year and you will be amazed at how fast your mortgage will be paid. Following this pattern, by year ten you will be paying an additional $1000 to principal each year and your mortgage balance will be incredibly low, if not completely paid.
   
   Personally, my 30-year note will be paid in at least 11 years by following this plan. I am currently increasing my additional principal payment by $100 a month each January when I normally receive a raise. Over time, as we learn to live on less, we may be able to get even more aggressive.

3. Everyone is Different
   
   Of course, each situation is different. Find an online mortgage calculator and play with the numbers using this plan. When you see how it can save you tens of thousands of dollars over the years, you will be motivated to give it a try.

Tips & Warnings

• Don't get so crazy with this plan that you accumulate other debts and get in over your head with credit card debts and consumer loans. Be wise with your money and do not let it rule you. Money is a good servant but a bad master.