February 2010 Mortgage Reduction Report

February is almost over and I thought we were not going to be able to hit our target for our mortgage prepayment this month.   That was until the bank made a big error.  I sent in a prepayment request for $500 and somehow $12,500 was taken from our account for a prepayment.  This caused a little grief as we were in overdraft for a day before using our line of credit to get us out of overdraft.

I am going to call the bank and ensure that all the money was put against our mortgage and see if they can figure out how that happened.  Although everyone makes mistakes I do not see how I would put $12,500 instead of $500 and I can’t see how the bank would either.  After we get stuff figured out we are likely just going to leave things as is.  The difference in the interest rates between the line of credit and our mortgage is minimul so the difference in the interest over the 3 months it will take to get the line of credit paid off is about $5 as compared to the mortgage. If the bank finds that they made an error and we find out that we have suffered any loss by going into overdraft I am confident that they will compensate us.

There is a big change in our interest saved this month.  I was playing with our mortgage numbers the other day and noticed that I had made an error when we first took our mortgage.  Before the first payment was even made we switched to accelerated bi-weekly payments rather than monthly.  I neglected to calculate the interest savings that we experienced when we switched to the accellerated bi-weekly payments.  Putting this into the equation I am extremely happy to say that we have saved $276K in interest costs combining the bi-weekly payments and our monthly extra mortgage payments.  This month’s bank error certainly helped.  That number simply astounds me.  We had an immediate savings of $97,552.90 when we switched to accelerated bi-weekly payments and it reduced our amortization period to 32 years.  Our additional prepayments have done the rest.

If you have not looked at what a couple of hundred extra dollars a month will save you over the life of your mortgage, you really should.

We did pass a couple of milestones due to the bank error.  Since we started our mortgage 19 months ago we have paid a total of $108,606.22.  We have also paid our original mortgage balance down by 27%.   Now we will be paying down the line of credit for three months.
After we got our error sorted out we decided no to utilize our line of credit to bring our mortgage balance down.  Our prepayments this month totaled $2000.  That combined with the additional $778 last month were are $1934 behind in our prepayment YTD.  We will see what we can do about that in the months to come.  The milestones we had reach have been reversed and we will have to wait a couple of months before reaching them.