So, besides working at least 2 jobs at all times for the past 10 years, how did I get my house paid off? No, I never made anywhere close to six figures. Last year was a good, but Uncle Sam just took a bigger bite. Sometimes it makes me wonder if the fed is actively discouraging hard work...but I digress.
Here is the back story, and the three things I did to pay down my mortgage quickly:
- Lived way below my means (despite my backpacking and outdoor sports addictions).
- I learned about mortgages. How they work, and the quickest ways to pay them down.
- Using a method called 'Debt Stacking' I aggressively prioritized paying off all my debts.
The first one is pretty simple. We can't always directly control how much income we can earn, but we can usually control how much we spend. I never cared about having the biggest or best of anything so this was always pretty easy for me - though I have still accumulated an absurd about of outdoor sports gear, it's pretty much my only vice. During the housing boom, I didn't care about having a McMansion like so many others. My house was plenty big enough. It was more of a challenge when I got married and started a business, but we've made do - and that's key.
Learning about mortgages is a so important. The majority of us don't know a thing about them, which is why so many of us are perpetually in debt. I bought my first house in 2000 (when I was 20 and clueless) not knowing anything about mortgages. It was a 30 year conventional, sold to me by the builder that also sold me my house (that's not a conflict of interest at all, right?!) I still remember him talking about the 30% rule. A ridiculous rule of thumb that you can afford any mortgage that is 30% of your income or less. Maybe that's true for you and maybe not - but the lesson learned was don't let a sales guy tell you what you can afford, and don't buy more house then you need.
After working my ass off for a couple of years, I got lucky and sold the townhouse near the height of the real estate bubble. So I had some equity to cash out and put down on the house I have now. I got my first mortgage on this house (still not knowing a damn thing) when I bought it on 10/1/2004. Suffice to say, it was a crappy mortgage. The purchase price was $145,000. The loan officer from Lending Tree convinced me I needed to get a mortgage plus a Home Equity Line of Credit (HELOC) for $20k to avoid paying mortgage insurance. You have to pay mortgage insurance whenever you own less than 20% equity in your home.
The mortgage companies really go out of there way to stick it to you here. At the time I didn't get this at all, since the house appraised for more than I was purchasing it for (I had put a ton of 'sweat' equity into it). As I later found out, your purchase price becomes the total value - even if the house is worth more. Makes perfect sense right? Later, I learned there are other ways around this - like a gift of equity from the seller. It's even more critical to avoid mortgage insurance now - as new regulations now require you to pay it for the life of your loan - even after you own more than 20% of your home.
Long story short - not long after settlement, I figured out what that HELOC was all about. A revolving line of credit secured by your house. Yes, exactly like a credit card. Read: BAD. I proceeded to attack that thing with anything and everything I had. I was fortune/unfortunate to be working constantly on the road with very little in expenses and no other debt at the time. So I was able to pay it off in a little over a year. I actually had to argue with the rep to close the account.
In March of 2008, I finally had a bit more education on mortgages. I refinanced to a 10 year Conventional loan - and taking advantage of it's daily simple interest calculation, I made bi-weekly payments. Now, for some mortgages, switching to biweekly payments doesn't amount to any dramatic reduction in term (length of the mortgage) or the interest you pay. But I specifically chose this type of mortgage because after each payment, the amortization table is recalculated based on the current principle owed. This means, just by making a payment a little bit sooner (or paying a little bit extra) - you immediately reduce the total amount of interest dollars you owe, AND the payoff date. You can payoff a 30 year mortgage in 21 years with this method - without paying any extra.
If you made it through all the nonsense without your eyes crossing, kudos!
Besides the new mortgage, I managed to accumulate some other debt (student loans, a car loan). I used 'debt stacking' (I'll explain that in detail in another post, but simply put it's a method to prioritize and payoff debt efficiently) to get that all paid off, until at last I was once again down to just my mortgage. Over the last year I chose to reduce the amount I saved for retirement and instead applied that extra to the loan as well as the money that was servicing the other loans I paid off.
My main reason (besides hating having a mortgage at all) is that the market has been doing really well - and I dislike investing when pretty much everything is 'up'. I try my best to wait for a market dip before buying - but that's another post as well. I reasoned I could pay myself a guaranteed 5.66% (my mortgage interest rate) by finishing the loan early - and easily 'catch up' with my investments once it was done (I've always fully funded my ROTH however - you can't catch up on that if you miss it!)
In the end, my 10 year, $106,168.99 mortgage would have cost me $36,925.58 in interest. With biweekly payments and no extra, it would have been paid off after 8 years with a cost of $34,701.16. Instead, I finished it in less than 6, and paid $24,879.68 in interest. Almost $10k in savings!
Original Mortgage Amortization Summary
Year End Totals
|
Interest
|
Principal
|
Balance
|
2008
|
4,728.18
|
7,598.18
|
98,507.81
|
2009
|
5,296.42
|
9,964.80
|
88,606.01
|
2010
|
4,718.40
|
10,542.82
|
78,063.19
|
2011
|
4,106.85
|
11,154.37
|
66,908.82
|
2012
|
3,458.71
|
11,802.51
|
55,106.31
|
2013
|
2,775.44
|
12,485.78
|
42,620.53
|
2014
|
2,044.71
|
13,216.51
|
29,404.02
|
2015
|
1,287.90
|
13,973.32
|
15,430.70
|
2016
|
473.37
|
15,374.82
|
55.88
|
2017
|
.11
|
55.88
|
0.00
|
Actual
Year End Totals
|
Interest
|
Principal
|
Balance
|
2008
|
4728.18
|
$97,851.56
| |
2009
|
4969.40
|
$87646.97
| |
2010
|
4703.42
|
$77,361.83
| |
2011
|
4091.04
|
$66,619.87
| |
2012
|
3,311.01
|
$54,791.55
| |
2013
|
2,562.04
|
$24,892.63
| |
2014
|
514.59
|
0.00
| |
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