How Your Tax Refund Can Save You $30,000

  • Rachel Johnsonby Rachel Johnson
  • Feb 06, 2019
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Using Your Tax Return to Cut 6 Years Off Your Mortgage

 

If you’re like me, when you set out to make a big purchase on credit, you have every intention of paying more than the minimum each month, right?

But most of the time things don’t quite work out that way. Finding even an extra $50 to put on a loan every month can be challenging which means you won’t be able to meet your goal of paying off your loan early.

No where is paying your loan off sooner more beneficial than on your mortgage, and actually, it doesn’t have to be as hard as you think. We just have to change that mindset a little bit.

 

The Breakdown of a Mobile Home Loan

 

When you finance a mobile home, there are a few different parts that make up your monthly payment. That is, the insurance, property taxes, interest, and principal.

In most loan situations, your payments are mostly going toward the interest first with just a small amount going toward the “principal” (the original amount of money borrowed). So, though your payments see large, they will last the full 276 month duration you signed up for.

But, there is a way to save some of that up front loan cost by paying your home off early!

How do we do that, though, when we’ve already established that putting extra on our loan is hard?

 

Close up of man's hands filling out check
“Making just one extra mortgage payment each year, you can pay your home off years early.” -Rachel

 

One Extra Payment a Year

 

Here’s the secret: Making just one extra mortgage payment each year, you can pay your home off years early.

Mobile home mortgages tend to be financed for 23 years rather than the standard 30 year mortgage in traditional housing.

And the place to find that extra payment? Tax refunds!

Let’s say you can expect $2,000-$3,000 per year on your tax refund. Subtracting just what a single mortgage payment would be and applying it to your home loan every year will save you dozens of mortgage payments as well as up to 25% in your total cost of interest, or the money you pay in addition to your original loan.

 

Graphic showing the progressive savings in larger annual payments
“Subtracting just what a single mortgage payment would be and applying it to your home loan every year will save you dozens of mortgage payments as well as up to 25% in your total cost of interest.” -Rachel

 

Here’s an Example

 

Okay, so what exactly does this look like?

Let’s say your total borrowed amount is $60,000 with an interest rate of 9% over 23 years.

Without taxes and insurance your payment would fall right around $515.00 per month.

Choosing to take that amount from your tax refund and apply it annually to your mortgage would cut your total loan down from 276 payments to 225 payments, or from 23 years to 19 years!

If you wanted to take it a step further, each year you could pay what your total mortgage payment is, including property taxes and interest.

This would mean paying around $800 extra per year, reducing your total number of payments to 204, paying your loan off 6 years sooner!

 

Woman smiling excitedly over paper received in the mail
“Making this sacrifice each year of what you might want to spend your tax refund on in the moment can save you literally years of payments and tens of thousands (!) of dollars in interest.”

 

Why Does it Matter?

 

Each year of your loan you are spending above and beyond what you borrowed on money you will not see a return on. The sooner you pay off your loan, the more money you will save through the duration of your loan.

How much?

Well let’s look at the same numbers we talked about above.

A $60,000 loan at 9% interest over 276 months will cost about $82,000 above and beyond the loan.

With your $515.00 annual payment you will save over $20,000!

Upping it to that $800 annual payment your savings are nearly $30,000!

Even if you add only $100 each year to your mortgage you can save $5,000 and pay your mortgage off 1 year sooner.

These are big numbers we are talking about and real money saved to put toward the things you want in life.

Can you imagine a life without a large monthly payment?

Making this sacrifice each year of what you might want to spend your tax refund on in the moment can save you literally years of payments and tens of thousands (!) of dollars in interest.

The little things you do matter and can make a huge impact on your future financial success.

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Rachel Johnson

ABOUT THE AUTHOR

Rachel Johnson
Rachel has worked in the mobile home industry over the last five years and is passionate about sharing and promoting this affordable housing option to potential home buyers in Texas. Purchasing her first mobile home in Texas at age 18 and later selling it for a considerable profit, Rachel and her family are now pursuing their next venture in home ownership.