I’ll start this post off with two words I’ve been waiting a long time to say. They aren’t the BIG words we’re looking forward to (that being “D-E-B-T-F-R-E-E”) but they’re mighty important all the same. Those words are; “Four Digits”. As of our July 1 payment, our mortgage is below the hallowed $10,000 mark at last!
Happy Little Roadblock: This month was our original goal for paying off our home, but as I wrote in our Four Year House-iversary post, finding out we were expecting in April last year made us decide to slow things down a bit as we prepared for the added expense of a new baby (or the “happy little roadblock” as I called it) and the reduced income of Courtney moving to full-time mama. But that’s the thing about goals; goals exist to motivate you and help keep you on track, but they shouldn’t cause you stress if the honest need arises to shift them. We set a new goal to finish paying off the mortgage by the six year mark (July 2016), but it looks like we’ll probably hit it this year!
It’s NOT About Income: We get asked a lot; “How are you doing this?! NO ONE pays off their house that fast!!” If we weren’t already doing it, I’d ask that question myself. It almost seems unreal to me, something only “rich” people do, but that definitely isn’t us! We haven’t won the lottery or received an inheritance. We make good but not huge money (our combined incomes total under six figures). I believe anyone can do this if financial freedom is on your bucket list. But nothing this big happens accidentally, and pure discipline won’t cut it. Motivation trumps willpower, and a plan gives that motivation a track to run on:
- The Plan: We purchased our home in July of 2010 on a 30-year, fixed rate mortgage. Being debt-free in five years gave us a finish line of July, 2015. Beginning with that end in mind, I ran the Amortization Calculator on our bank’s website to see how much extra per month and per year we’d need to average to meet the goal.
- The Process: With the big numbers in hand, we could calculate our monthly budget precisely, making cuts as needed. With the average monthly amount figured out, I use the bank’s online portal to make our payment and add the extra to principle (it would work the same with a physical payment book), always striving to hit above the average to give us extra cushion for lean months.
- The Motivation: It was daunting to think about making triple or quadruple payments (our largest to date was NINE TIMES our monthly principle and interest!) every month for five years. So for extra motivation, I write these “House-iversary” posts each summer (see Year 1, Year 2, Year 3, and Year 4 if you’re curious) to keep us accountable and celebrate milestones. Courtney even created a physical “Mortgage Thermometer” to hang on our refrigerator that lets us peel off the debt as it’s paid.
Show Me The Payments! “That’s all nice in theory,” you say. “But what about the MONEY? How were you able to make those massive, budget-cracking PAYMENTS?!” As I said, we don’t make huge money, but three fundamental steps made it possible while still having a life:
- Get Debt-FREE: We were totally debt-free before we bought the house. By eliminating all other debt, our income was set free to apply to our big goal. Removing the debt also gave us the flexibility to roll with any emergencies that came up without jeopardizing making our mortgage payment. And that’s a nice feeling when you’ve got a 30-year debt hanging over you!
- Save BIG: We saved up a 20% down payment. A large down payment meant our interest rate was lower, our monthly payment was smaller and – by making it 20 percent specifically – we didn’t have to pay Private Mortgage Insurance (PMI) which, for those not familiar, is the homeowner ensuring the bank for their mortgage. No thank you.
- Buy SMALL: We bought a conservative home. Our base payment is just 20 percent of our combined after-tax income, including taxes and insurance. Sure, we got approved for twice as much, but a less expensive house ensured the payment would be one we could make easily, and double up on without trouble.
And that’s it, no tricks! In a nutshell; we envisioned our goal, set the stage for success and created a plan, and then proceeded to live it every single day, setting milestones and motivators to keep us on track. Stay tuned for the big payoff, coming THIS FALL!
The Disclaimer: Remember, this goal is just one step on our overall financial plan— one that took us years to accomplish. I do not recommend paying extra on your house until/unless you have gotten rid of all other debt (yes, including ALL student loans and car loans), have a comfy cash emergency fund (three to six months of expenses is good), and regularly contribute to retirement and kids’ college funds (if you have kids). Until then, the tax deduction on mortgage payments and the low interest rates push it to the end of your fiscal priority list. (PS – If that sounds like a concise summary of Dave Ramsey’s Baby Steps, you are an astute reader!)