Two years have passed since Courtney and I became homeowners. It’s been (knocking on wood) a strangely peaceful ride thus far. After a great first year, the bar was set high for our second year of homeownership. Let’s check in, shall we?
Our Old House: There have been no major repairs to deal with and no crises (still knocking), with only voluntary improvements to make. We’ve painted all but one room, added a kitchen floor, installed a chair-rail and crown molding (almost fancy enough to call it crown ‘moulding’) in the dining room, added hand-made curtains in most rooms, and loads of smaller touches throughout – from hanging recycling bins to installing shed locks to refinishing old furniture. I’m realizing fully a truism a good friend told me when we bought our house: You’ll never be bored again!
It has been incredibly satisfying, educational and even fun doing all these things. Especially doing them together. We’ve found our strengths compliment each other very nicely. Courtney has a fantastic eye for decorating and a steady hand with a brush, while I handle the carpentry, demolition and installation projects – one hand on the hammer, the other holding one of my grandpa’s 1960’s era Black and Decker DIY books.
But this site is about our journey to the mecca of financial fecundity, so let’s get to the numbers!
Homeowner Math 101: The more astute of you will no doubt notice that even though we paid more on the principal in Year 2, we cut less time off the mortgage than Year 1. That, dear money nerds, is the power of reverse compound interest at work! In the first year, the Principal to Interest Ratio (or ‘PIR’, copyright pending) is at it’s lowest, with the greatest bulk of the monthly payment going to line the bank’s coffers. That means it takes a relatively small amount to match that monthly principal and ‘double-down’ (our first month, the principal portion was just $167). But with every payment, that ratio shifts ever so slightly in favor of principal. This past month, our PIR was nearly twice what it was our first month ($331 principal). That’s really a good thing (less interest paid) but it’s a somewhat bad thing in that it takes more and more money to cut the same amount of time. It’s the one big downside to vigorous mortgage prepayment: it takes more bucks to get the same bang.
One To Grow (Your Equity) On: The time to dramatically alter your mortgage future is NOW. Even if you’ve never paid a dollar extra, now is the time: every dollar you spend today is worth more than the one you spend tomorrow. If you’re about to buy a home, do whatever it takes to make your first two years big, even if you can’t do it ever again. If we had to stop tomorrow and never paid another extra dime again, those 14 years are ours, baby! And no market volatility, no bank restructuring, no economic hullabaloo can take them away.