Use Inflation To Pay Off Your Mortgage

Today's mortgage rates are at historic lows due to the sluggish global economic conditions.  However, as the global economies recover and grow, interest rates will rise to their normal average.  For example, 5 year fixed rates nowadays are in the mid 3% range, however the average over the last 25 years is around 6%.For illustration purposes, here is an example:

Mortgage of $250,000 at 3.5% amortized over 25 years with a monthly payment of $1,248.18. If the homeowner sets the payment and forgets about it till renewal time, the monthly payment will increase by $288.01 per month (assuming the renewal rate is at 6%).

By adjusting the mortgage payment to absorb the payment shock over 5 years (increase monthly payment by $57.60 every year), at renewal the mortgage balance will be reduced by $7,275.88 and remaining amortization drops from 20 years to 16.12 years saving $58,115.07 for a total saving of $65,390.95 (all figures are after tax dollars).  For someone who is at a 40% tax bracket, they would have to earn $108,984.92 to pay the $65,390.95 interest figure.

Adjusting your mortgage payment for inflation will save thousands of unnecessary interest dollars and shave years off the mortgage.