A Mortgage Burning Party— just wth is that you might ask? In this world awash with mega-debt I imagine that most people have never heard of a mortgage burning party. But, back in the day, it was not uncommon. And ’twas a goal that many aspired to.
Few people can pay cash for a new home, so they get a mortgage loan from a lender to make up the difference between their cash down payment and the purchase price. Then, when they write the mortgage lender a check on the 1st of each month, a portion of that payment goes toward the principal. That amount grows with each passing month. Pay on it long enough and you’ll eventually own your home free and clear. Paying a mortgage loan down builds financial security and wealth. For most people, the equity in their home is the largest piece of their financial wealth.
So, just exactly how does one go about paying off their mortgage? Let’s take an example, using a typical $140,000 house. (Btw, that’s the current median average sales price of a home in Central Indiana.) Option A would be what most folks do- they take out a loan for 30 years. The current rate on that loan is around 4%, making for a loan payment of $668. At the end of the first 5 years you would have reduced the loan balance from $140,000 to $126,519. Pay faithfully for another 5 years and you’d owe just $110,298. Pay another 20 years and the bank will send you the mortgage document stamped “Paid in Full!” and you can pull out the box of matches.
Now, let’s look at how you can accelerate this so you can envision that happening on the near horizon. Rather than a 30 year, consider taking a 15 year mortgage. The rate’s a little better- like 3.5%. That combination would put your monthly payment at $1,001. It’s more, but you can buy and budget accordingly if your goal is to own your home free and clear— and save yourself tens of thousands of dollars in interest charges. (I’m sure you can find a better use for that money!) So, with that set-up, at the end of 5 years you’ll have paid down to $101,211 (less than what you’d still owe on a 30 year mortgage after about 14 years). And after 10 years you’d have the balance paid all the way down to just $55,015! Just another 5 years and you could have yourself a good ol’ fashion Mortgage Burning Party! Thinkaboutit…