I remember having a conversation with a group of friends a few years ago. My parents had recently paid off their mortgage (YAY!) at the time in their sixties and a friend was stating that he doesn’t understand how it was possible to pay off a mortgage any earlier than that age range. Immediately my ears went up and once we started blogging I knew I had to write about this.
There are some reasons why my parents took a while to pay off their mortgage: (1) They came from a less fortunate country at the ages of 32 and 39 with (2) limited education and (3) three kids under the age of 10. To put it in perspective, when I graduated from college and got my first job I made more than one of my parents and wasn’t too far behind the other.
Today, with bonuses and stock grants, I probably make a little less than both of them combined at the end of their careers. This particular friend is very successful and makes substantially more than me. Stating the obvious, my friend and I have the ability and thus the opportunity to pay off a mortgage considerably quicker than my parents could given our incomes.
In an effort to be transparent and to show how someone can pay off a mortgage at a relatively young age I’d like to share:
- where we are currently
- decisions we’ve made
- conversations we’ve had to come up with ideas
- our mortgage payoff plan
- Kim’s thoughts
We will also be posting monthly or quarterly to give you an idea of the progress we are making.
Where We Are
At the time of this post, Kim and I are both 34. We’ve always talked about how cool it would be to have our mortgage paid off by 40. So that’s the goal that we’re setting for ourselves. We currently owe $135K on our home. Our income varies depending on how much Kim works. Kim isn’t comfortable with sharing all our financial numbers for several different reasons. However, we fall in the middle area of what’s considered a middle-class income. If you’re curious what that is, she said you can Google it just like she did in order to edit out the numbers I tried to share (lol)!
We have been debt free except the mortgage since 2015. Between 2015 and now, we were cash flowing updates to our home. The last major item to do is our bathroom. We’ve actually saved up the cash to do it twice but found better uses for the money.
Decisions We’ve Made
I think the biggest lifestyle decision we’ve made is to do a budget consistently and down to the penny. For the last 6 years of our marriage, we could tell you where every penny was spent. But the budget isn’t just about tracking your spending. It’s about telling your money where to go. It’s literally the turn by turn GPS that gets you from where you are now to where you want to be financially. We want to pay our mortgage off. Therefore, we put a category in our budget named ‘Additional Mortgage Principal’.
The next big decision that we made is that in 2016 we refinanced to a 15-year mortgage at 3%. Not only did we shorten the length of our mortgage but we shaved 1.125% from our mortgage rate. We also eliminated PMI. At the end of this transaction, our mortgage payment was only $200 more. That is definitely worth eliminating 15 years of payments.
Another critical decision we made was to buy in 2013 when the housing market was extremely cool. We still had some student loans to pay off and our original plan was to pay those off then save up a down payment for a house. However, Kim convinced me that buying a house was the best decision at that time because houses were so undervalued then. We could get a nice house in a good school district for considerably less than before the market crash. She was right, and I’m so glad I listened. The truth is we couldn’t afford to live in our current home with what houses are going for now in our area unless Kim was working full-time. Thankfully, we bought when we did.
Conversations We’ve Had
In the finance world, there are generally two trains of thought when it comes to this topic of paying off the mortgage.
One thought is that you make your regular mortgage payment and invest any free funds in your budget. The idea here is that the performance of the stock market will beat the interest you are paying on the mortgage. This definitely makes sense and I don’t shun people that go this route. Could I do it though? Hell no. My disgust for debt is too great to owe anyone for the full length of a mortgage term whether it be a 15, 20, or 30-year mortgage.
The second thought is that you invest a certain amount of your household income (10 or 15%) and throw all extra funds in your budget at the mortgage. This sounded like a good idea until I started to calculate the additional payments I would have to make to pay the mortgage off by 40. It would take an average of $1150 per month in additional principal payments to pay the mortgage off in 6 years. This could be possible depending on how much Kim works but things would be tight. Too tight! We want to live a little bit! The other problem is that we wouldn’t get the benefit of spending this money until (1) the mortgage is paid off and the payment goes away or (2) we sell the house. That’s a lot of money per month for a loooooooong time to not reap any benefits from it.
After presenting a million different plans to Kim over a few years I finally settled on a plan. Thankfully, Kim likes it because I know she was losing her patience with me (lol).
Our Mortgage Payoff Plan
Our plan is to do a 70/30 split with the extra funds in our budget. 70% will go to savings. This could go towards life expenses (car repairs, daycare/school for our older child, vacation, Christmas, etc.). If we don’t have any
As you can see, this plan is somewhere in between the two trains of thought. My thought is that the taxable account will be more liquid than tying the money up in a 401K or IRA. Eventually, the amount in the taxable account will be equal to the mortgage and we’ll have the option to pay it off or keep a huge stash of FU money. We’ll also still be making more headway on the mortgage than the normal payment. It’s a win/win. Also, a portion of my compensation for the company I work for is stock units. These stock units vest over a certain amount of time. As this stock vests, I plan to cash out half of it to throw lump sums at the mortgage.
When we first bought our house and signed up for a 30-year mortgage, I must admit that I didn’t think much about paying it off at first. Hell, I was still wondering how we were going to tackle my biggest student loan. However, as the years passed and we paid off my student loan we started to think again about possible ways to pay off the house sooner.
Between home updates, vacations, emergencies… life, we realized that as good as we were with our money, it felt like something was always competing for it. And we knew then that it would probably be hard to stick to paying extra Every. Single. Month. Not to mention that I told Omar on several occasions that 15 years sounded good to me once we refinanced because I didn’t know how we were going to make it work. But I would always ask him to run the numbers to see how much we had to come up with monthly in order to pay the house off by 40. And then I’d feel annoyed because —-> Where was an extra $1000+ going to come from per month?!
Truth be told, even I’m amazed that we’re at the point of where we’re going to start paying off our mortgage. And I’m even more amazed that we finally came up with a plan that Omar has agreed to stick to and not overthink… anymore (lol).
What Do I Think About Our Mortgage Payoff Plan?
I think doing a 70/30 split is a good idea because it will allow us to still have some fun with our money as well as get down to the business of paying the house off early. As a matter of fact, we actually started doing this in November.
In November, we paid $1700 to the principal and it felt good to start.
- $794 from our regular payment
- $910 from our budget
In December, we paid $1284.28 to the principal.
- $798.15 from our regular payment
- $486.13 from our budget
I know we have a long journey ahead of us to get this house paid off, but I know it’s something we can do. I’m looking forward to being mortgage free in the future and all the things we can do with that extra money in our budget…like going to the beach!
So, we’re setting a goal of paying $23K of total principal to our mortgage per year for the next 6 years. We currently owe $135K. We’re already paying $9600 to the principal yearly from the regular payments. That leaves us to come up with $13.4K.
Where will we get this from?
- $6000 yearly will come from employer stock (it would be $8K, but you know… taxes).
- $7400 will have to come from any leftover money in our budget (divided by 12, that’s a little more than $600 per month).
Some months we might not make the $600 target, and some months we might exceed it. Regardless, we will do 30% of any money we have left after our regular monthly expenses and anything we may need or want.
We’ll definitely keep you posted on if this plan changes and on the progress of the mortgage pay down! Time for us to get to work!