Kevin over at the No Debt Plan blog recently advised his readers to avoid mortgage accelerator programs like the plague.  He reasoned that you could set up your own mortgage accelerator program by adding 1/12 of a payment as additional principal to each month’s payment.  I agree with Kevin. You can save a boatload of interest by making extra principal payments.

Sending in extra principal payments sounds good, but I think you need to see the impact - namely, how much interest you can save.  So, I set up an Excel file to calculate the interest savings.  You can access the file by clicking on the following link to my mortgage amortization spreadsheet:

Mortgage Amortization Spreadsheet

To use the spreadsheet, just do the following:

1. Enter your mortgage amount into cell B2
2. Enter your interest rate into cell B4
3. Enter the length of the mortgage in years in cell B6

This will populate the rest of the spreadsheet.  It will also calculate your monthly payment (cell B9), and the interest you can expect to pay over the life of the mortgage (cell B11).  If you want to see how much interest you’ll save by adding extra to your monthly payment, just enter the amount into column H in the appropriate month, and the answer will be calculated for you in cell B16.  You’ll also see the number of months that you’ve shaved off the length of the loan in cell B18.

I would definitely recommend sending in additional principal payments if you have the means to do so.  Obviously, this only makes sense after you’ve retired all of your high-interest credit card debt beforehand, and have a healthy emergency fund established.  But if your mortgage is your last outstanding debt, you can count on a return equal to your interest rate.

Now, open the spreadsheet and have fun crunching numbers!

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