Shawn from the book has learned a lot!
- The faster you can get out of debt, the less interest you will pay.
- Those who understand interest earn it.
- Those who don’t, pay it.
- The longer you are in debt, the more interest you will pay.
Let’s look at Shawn’s mortgage from a different perspective, an interest savings over time perspective.
By making prepayments to his mortgage, Shawn will save money. The sooner Shawn makes a prepayment, the more he will save. This is how much interest Shawn can expect to save.
- In year 20, when the Principal and Interest payments are equal, $1 paid extra will save approximately $1 in interest.
- If you were to wait until year 24 to pay an extra $1, then you would save approximately $0.50 in interest.
- In year 14, $1 extra paid will save approximately $2 in interest.
- In year 9, $1 extra paid will save approximately $3 in interest.
- In year 3, $1 extra paid will save approximately $5 in interest. Or…… 1 = 5.
For the typical new homeowner, if they were to pay just $1 extra towards their mortgage, they would save $5 in interest obligation. It’s just math. And it’s guaranteed.