How We Paid Our Mortgage In Less Than Five Years. You Can Do It Too In 5 Easy Steps.
Friends have difficulty believing we paid for our house in less than five years.
Not having a mortgage is the best feeling in the world; we have more time to pursue our passions and work on projects that we truly love. Projects like writing this blog, which we hope helps others achieve financial freedom.
Paying down our house was not accidental, we planned it. We purposefully followed the strategies we are about to tell you, and we mustered up the courage to stay consistent until the end.
So, how did we pay for our home in less than five years? Read on.
Background
In October 2014, we purchased our home. It has two bedrooms and two bathrooms, with a loft that has been transformed into a gym.
It is located in Fort Lauderdale in a homeowners’ community, which means we pay a monthly fee.
In exchange, we don’t have to worry about mowing the lawn and other outside chores.
To pay for the house, we took out a mortgage of $140000 from chase bank. Currently, the home is valued at double that amount.
Our household consists of my wife Jess, me and our furry doggy Nikita.
Jess worked as a quality control manager for a pharmaceutical company, and I was a personal trainer for a big chain gym.
Neither of us ever made six figures while paying down the mortgage.
Other interesting facts:
- We took five cruises while paying down the mortgage.
- One trip to Ecuador.
- We held on to our Amazon Prime membership and probably purchased way too much stuff we did not need.
- We went out to eat at least twice a week.
- We never neglected our health and fitness while in this process. In fact, we ended up leaner and better looking at the end.
All the above vacations were planned, and it took us time to save enough. The point is, you can be frugal and live an abundant life also.
Paying Down Your House In 5 Easy Steps
Step 0: Before You Buy.
Step 0 is for those lucky people who stumbled upon this blog before buying a property. So here it goes: Pick a house or condo that costs no more than four times your yearly income.
Example: If you make $40000 a year. Your maximum loan amount should be $160000 or less.
Don’t worry about finding your “forever home”.
It’s your first house. All you have to do is make sure the property is in good, livable condition.
Step 1: Write It Down As A Goal.
When you write down a goal, you bring something into the real world. You are taking an idea that exists in your mind and giving a place into our world.
You can write it down on your phone, but it is better to write it down on an actual piece of paper or, better yet, a vision board you can see every day.
Paying down your mortgage is a big commitment. Only 40% of Americans do not have a mortgage, and most individuals in this category are over 55 years old.
By writing down your goal, you are signaling your subconscious your intentions and improving your chances of success.
Read Now: 10 Short-Term Financial Goals To Start Saving For Now
Step 2: Calculate The Time It Will Take To Pay It Off.
You have to use a calculator to learn how many years it will take to pay down your home in full.
It will ask you for your original loan amount, how much you owe now, and your interest rate. So make sure you have that information available.
NerdWallet mortgage early payoff calculator.
After making this calculation, you will find out that paying your mortgage early will save you a fortune in interest payments. The peace of mind from knowing you own your house outright cannot be measured.
When we factored paying our house in five years, the calculator showed us an amount that made our jaws dropped. We wondered if that would be even possible.
So we talked about it as a couple and decided to cut back on unnecessary expenses and trying to live on one income so that we could save an entire paycheck every month.
Related: How To Live On One Income. Tips To Become A Single-Income Family
Step 3: Cut Down On All Extra Spending, Leaving Some Room For Fun.
When you don’t have a mortgage, there are many things you can buy and new places you can see. But in the meantime, cutting down on unnecessary spending will help you reach that debt-free status faster.
If you are already using a budget, you should have a pretty good idea of your monthly expenses. Look for categories where you can make adjustments without sacrificing your quality of life.
Remember that this sacrifice is only temporary. In fact, it can be only a 5-year sacrifice that will last for the rest of your life. Cutting back on expenses can be as easy as applying the 30-day waiting rule.
The goal here is not to be overly cheap. If you cut too much, you may end up burning out.
Also, you may not be the only person on board. If this is a two-person goal, there’s someone else’s thoughts and feelings you need to consider.
Step 4: Maximize Your Income.
Making more money will result in more disposable income for your mortgage payments.
There are a few ways to make more money:
- Ask for a raise.
- Get another job.
- Try a new side gig.
- Sell stuff you’re not using.
When you are determined to pay your mortgage as quickly as possible, you will be surprised at all the creative ways you can come up with to make it happen.
Interesting Read: Best money-making jobs for students.
I started picking up personal training clients on the side to earn more. We even created a side business selling supplements that became mildly successful.
Step 5: Evaluate Every Three Months, And Adjust As Necessary.
After starting your early mortgage payoff journey, you have to be consistent. Checking your finances every quarter or every three months will ensure you stay on track.
It is a good idea to set up a date on your calendar to meet with your significant other and discuss what has worked and needs improvement.
This is a business meeting. And just like any business meeting, you both can take a step back and make recommendations.
Related: How to budget as a couple without fighting
If you have a business mindset when paying down your mortgage, you’ll be more inclined to take it seriously.
After three months, you may find that you can pay even more to the bank. Or maybe you discovered that the car lease you’re paying off is costing a fortune, and you can switch to a used car in good condition.
Making these adjustments will help you save more.
Why Pay Your Mortgage Early?
Paying your mortgage early can give you peace of mind.
You also have an asset that you own free and clear. You can experience a feeling of freedom when you don’t have to pay a mortgage every month, even if it’s small.
Remember, the bank owns your home until you have paid every last cent.
In 2008, there were people who “owned” a dozen homes. But when the real estate market collapsed, many of these “homeowners” ended up with nothing.
But not everyone.
Those that owned their homes free and clear got to keep them because they were the actual homeowners.
What Can You Expect After Paying Down Your House?
After paying down your house, you will have at least double, if not triple, your current disposable income.
Another great thing is the feeling that comes from knowing no one can ever take your house away from you (provided you pay your property taxes).
After paying down your mortgage, however, you are now responsible for paying:
- Property taxes
- Homeowners maintenance (if you have any)
- Property insurance (if you decide to keep it)
When you have a mortgage, your loan provider takes care of making all these payments on your behalf.
But once you don’t have a mortgage with them anymore, you are now responsible for those payments.
Fear not, however, because it only takes minimal time and effort to set up autopay for those services.
I’ve Been Told It’s Better To Invest The Money Instead Of Paying My Mortgage Early
This is usual advice from money managers, banks or stock market gurus that goes something like this:
Your mortgage only carries a 4% interest rate. The average market return over the past 100 years has been over 7%, which means if you invest all your money instead of paying down your mortgage early, you will make more money.
Although the above statement is true, here is what they don’t tell you:
- The stock market is volatile. You can lose more money than you make if you start buying or selling based on market conditions.
- If you missed the ten best days in the stock market, you would have missed two-thirds of the gains.
- You may not live long enough to enjoy all this retirement money if you develop health issues down the road. As opposed to owning your home outright now that you can actually live in and enjoy.
- Money managers charge you a fee, whether an annual or commission. The more money you give them, the more money they make. But when you own your house clear and free, the only person winning is you, not the banks, not anyone else.
Is There A Penalty For Paying Off Your House Early?
Some banks charge a penalty if you pay your mortgage early. You can find this in the documentation you receive when you get your loan. Sometimes you may have to call your bank to find out.
We did not have to pay a penalty when we paid off our home, which we did in three and a half years. Our mortgage was originated with Chase bank, and they were always ready to answer our questions.
In Summary
Paying down your mortgage early requires preparation and planning. Before we decided to pay down our house, we had already had some financial discipline going on for us.
We already had a budget, we were using mint to track all our expenses, and paid down other debts, and although we didn’t make much money on our daily jobs, at least we had stability.
Some things that can help you pay your mortgage early:
- Basic budgeting knowledge.
- Expense tracking.
- Ideally, no lease or car debt. We drove used cars that carried no debt.
- Two-income household. Or one high-income salary.
- Job stability (at least one year with the same company)
- A deep desire to live a life of freedom.
Now that you know what people who have paid their homes off early have in common, it’s time for you to get to work and plan your life of financial freedom.
