Today marks a momentous occasion in our lives. One for which we have been waiting for some time. No—the baby hasn’t come yet. Today marks exactly two years to the day from when we closed on our house…and today also marks the day when we have PAID THE FINAL PAYMENT ON THE HOUSE! That’s right, our home has been paid off in exactly two years.

Mortgages are so overrated.

If you’ve followed us for very long on this blog, then you’ve probably seen a number of posts on the topics related to our thoughts on and experiences in homeownership. Here they are again if you want to take in the full story:

The Basics

So just for review, here’s some of the basic info on our house and the mortgage:

  • Our 3 bed/2 bath house with detached guest house and 1 acre lot was purchased for $185,000
  • We put $100,000 down on the house
  • We got a 15-year fixed-rate mortgage at 3.49%
  • Our mortgage officially started on August 1, 2013

The Interest is of Interest

If you’ve read many of our posts, you will know that we dislike paying full price for things. So you can imagine how we absolutely DETEST paying MORE than full price for anything! That, in essence, is one of the big reasons why we pushed to pay off the mortgage so quickly. If we had stretched out our $85,000 mortgage to the full 15 years, we would have paid a whopping $24,301.91 in interest alone. (That’s 29% of the mortgage amount, in case you were counting.) That is nearly enough money for us to live on for two entire years!

So with a 2-year payoff, the actual amount of interest that we paid for the privilege of borrowing $85,000 was $3,344.85. That’s still $3,344.85 more than we’d like to spend, but it means we saved over $20,000 on the purchase of our house.

In Time for the Baby

As you may already know, our baby is due very soon, and the timing of the pay off of the house actually has a great deal to do with that.  We weren’t originally planning on having the mortgage paid off quite this early (we were thinking around January 2016 actually), but when we discovered that we were pregnant late last year, we purposed to squeeze a dollar out of every penny to get the thing paid off before the baby arrives.

Why the urgency, you ask?

We plan for Deb to stay home to take care of Baby Crumb Saver, which results in us losing nearly half of our income.  The mortgage payment is our largest monthly expense, so by eliminating it, we free up our cash flow to enable living on much less.  That’s not to say that we wouldn’t have been able to make our mortgage payments once she quits working, but we likely would have only been able to make the minimum.  So if we had gone with our original plan of having the house paid off in early 2016, we would still have about $17,000 remaining today.  If we started making just minimum payments on that now, it would extend our payoff date to January 2018.

So by tightening our belts to push past the finish line on the mortgage BEFORE the baby comes, we didn’t save just five months on the mortgage but actually two entire years!  (Plus an additional $760 in interest. Yuck!)

Crazy Big Payments

So what does a 2-year mortgage payoff look like on the month-to-month basis? In summary, it means hurling as much free cash as possible at it.  More specifically, it means paying an average of six times the minimum payment each month.

Our minimum mortgage payment was $607.24/month, so that means we averaged paying around $3700 each month to cut our payoff time to two years. As we’ve mentioned before, to do this, we paused deposits into our other investment accounts in order to put all extra funds toward the house. So any bonuses, raises, tax-refunds, gifts, loose change from under the couch cushions, etc. all went toward the house. Our biggest one-time payment was $8910. That one payment alone took two years off of our 15-year mortgage!

Redefining What We Can Afford

Most homeowners I know don’t have the capacity to pay six times their monthly mortgage payments on a regular basis–a least they THINK they don’t.  It’s really all a matter of perspective and priorities.  For example, at our average rate of paying $3700 monthly, we could theoretically “afford” a $500,000 mortgage, assuming the same 3.49% fixed interest rate over 15 years.  Mortgages of this size really aren’t all that uncommon in certain parts of the country, and my hunch is that many Americans reason themselves into them by thinking the priority is to get the biggest house that they can make the payments on.  So for people who find themselves in such situations, it’s incomprehensible how paying ANY extra into the mortgage each month is possible.  Much less SIX TIMES more!

You see, the problem is that we need to redefine “what we can afford”.  Let’s say, if you can comfortably do a $3500 monthly mortgage payment, try getting one instead where your monthly minimum is $2500 and pay an extra $1000 each month.  This will cut your 15-year mortgage down to 10 years, and save you $36,000 in interest.  What’s the catch?  Moving down from a $500,000 house to a $350,000 one. Not exactly an impossible sacrifice, if you ask me.

If you’re already picking up stones to hurl at me because you’ve got your heart set on a big house, remember what we discussed in a previous post on The Art of Having Your Cake and Eating It Too.  It’s not that you can’t have the bigger house that you prefer, it’s just a whole lot more financially savvy to buy a smaller one and pay it off quickly, then use the equity in that one to move up to the next one instead of going straight for the big house and taking out a maximum mortgage.  Alternatively, you can also just save up a huge downpayment.

Oh, and also don’t forget that your home isn’t that great of a financial investment anyway.

Mortification Over Amortization?

At this point, some of you might be thinking, “Oh, I can’t pay THAT much more into my mortgage, so I guess I might as well just stick with paying the minimum since I can’t make much of a difference.”  Not so fast.  Even small, additional principal payments can make a huge difference.  Let me try to illustrate.

The table below is of a portion of an amortization schedule, which is the payment plan all mortgage lenders use to lay out your monthly payments and the allocation between principal and interest.  This is the first three years (36 payments) of a 30-year, 4% fixed-rate, $250,000 mortgage.

1 $1,193.54 $360.20 $833.33 $833.33 $249,639.80
2 $1,193.54 $361.41 $832.13 $1,665.47 $249,278.39
3 $1,193.54 $362.61 $830.93 $2,496.39 $248,915.78
4 $1,193.54 $363.82 $829.72 $3,326.11 $248,551.96
5 $1,193.54 $365.03 $828.51 $4,154.62 $248,186.93
6 $1,193.54 $366.25 $827.29 $4,981.91 $247,820.68
7 $1,193.54 $367.47 $826.07 $5,807.98 $247,453.21
8 $1,193.54 $368.69 $824.84 $6,632.82 $247,084.52
9 $1,193.54 $369.92 $823.62 $7,456.44 $246,714.59
10 $1,193.54 $371.16 $822.38 $8,278.82 $246,343.44
11 $1,193.54 $372.39 $821.14 $9,099.96 $245,971.04
12 $1,193.54 $373.63 $819.90 $9,919.87 $245,597.41
13 $1,193.54 $374.88 $818.66 $10,738.53 $245,222.53
14 $1,193.54 $376.13 $817.41 $11,555.93 $244,846.40
15 $1,193.54 $377.38 $816.15 $12,372.09 $244,469.02
16 $1,193.54 $378.64 $814.90 $13,186.99 $244,090.37
17 $1,193.54 $379.90 $813.63 $14,000.62 $243,710.47
18 $1,193.54 $381.17 $812.37 $14,812.99 $243,329.30
19 $1,193.54 $382.44 $811.10 $15,624.09 $242,946.86
20 $1,193.54 $383.72 $809.82 $16,433.91 $242,563.14
21 $1,193.54 $384.99 $808.54 $17,242.45 $242,178.15
22 $1,193.54 $386.28 $807.26 $18,049.71 $241,791.87
23 $1,193.54 $387.57 $805.97 $18,855.69 $241,404.31
24 $1,193.54 $388.86 $804.68 $19,660.37 $241,015.45
25 $1,193.54 $390.15 $803.38 $20,463.75 $240,625.30
26 $1,193.54 $391.45 $802.08 $21,265.84 $240,233.84
27 $1,193.54 $392.76 $800.78 $22,066.62 $239,841.08
28 $1,193.54 $394.07 $799.47 $22,866.09 $239,447.02
29 $1,193.54 $395.38 $798.16 $23,664.24 $239,051.63
30 $1,193.54 $396.70 $796.84 $24,461.08 $238,654.93
31 $1,193.54 $398.02 $795.52 $25,256.60 $238,256.91
32 $1,193.54 $399.35 $794.19 $26,050.79 $237,857.56
33 $1,193.54 $400.68 $792.86 $26,843.65 $237,456.88
34 $1,193.54 $402.02 $791.52 $27,635.17 $237,054.87
35 $1,193.54 $403.36 $790.18 $28,425.35 $236,651.51
36 $1,193.54 $404.70 $788.84 $29,214.19 $236,246.81

The first thing you will notice is that while the monthly payment amount is the same each month, the amount allocated toward principal vs. interest is not.  You may be disheartened to find that at first, the vast majority of each payment goes to interest while a very small amount counts toward the principal.  In fact, it isn’t until the 153rd payment that more goes to principal than interest. Nearly 13 years in. By the end of the third year of payments, you’ve paid nearly $30,000 in interest but have decreased your balance owed by only $13,700.  Regardless of all that, having this understanding can actually work toward your advantage.

Notice that for the first few payments, only around $360 of each payment is going toward principal. (The remaining balance at the end of month one only went down to $249,639.80 from $250,000.)  Suppose you simply paid an extra $362.61 toward principal in payment two (bringing your payment from $1193.54 to $1556.15), you would be left with a balance of $248,915.78.  Looking carefully, you’ll see that you’ve actually managed to skip an entire payment AND saved over $830 in interest!  You have effectively doubled your payoff rate without putting in anywhere near double the actual payment amount.  Imagine doing that regularly through the first 36 payments, and you’ve effectively shaved 3 years off the mortgage.  You see, whatever principal you pay off early is spared interest charged on it for the life of the mortgage; even making small extra payments can make a big difference.

What I’m trying to say is this: Don’t feel like making extra debt payments isn’t worth it because you can only muster small amounts.  Small amounts can still lead to big results!

What’s Next?

Paying off the mortgage has pretty much been our singular financial goal for the past few years. So now that we are officially, completely, entirely, 100% debt-free (of course, the mortgage was the ONLY debt we had). What do we do next? What are the next financial goals? It’s time to refocus our attention to saving for some other future needs:

  • Home Improvements. As with all homeowners, we are always finding things to be done around the house. We’ve got a running list of various things that need to be fixed, upgraded, or otherwise improved—and now that the mortgage is gone, we can focus on saving up for those things. (I’ve been eyeing a zero turn mower for my yard lately…)
  • Retirement Savings. As we’ve previously discussed in the post, “How Should Christians View Retirement?”, I believe it is a Biblical principle to save for future needs. Especially since we’ve put our retirement savings on hold for a few years, it’s time to replenish those funds.
  • College Savings. Related to the previous point, now that we’re adding a child to the home, there are anticipated future expenses we need to consider for her as well. The biggest one of course is her future education. We’re still considering carefully as to the exact strategy we’ll take for saving for college, but for sure we will be starting to put money away in preparation for that eventuality.  (Update! We’ve written our thoughts about this. Check out: How We’re Saving for College–and How We’re Not)

What About You?

We share all of this info hopefully to inspire someone, somewhere to take control of his or her finances. You may not have a mortgage, but you might have a student loan, or a car loan, or credit card debt. You CAN make adjustments to your life to pay it off early. You might not pay it off in two years. It might be a little more (or less!) but that’s not the point. The point is that YOU CAN DO BETTER. You’ve got to make the decision and start. Take the personal responsibility, set your goal, develop your plan, find some accountability, and DO IT. Put your nose to the grindstone, sweat it out, endure, and one day you’ll look up and that financial mountain you’ve been dreading will be gone.

What are some of YOUR financial goals?  Any specific debt payoff goals?  Do you have special strategies to help you stay focused and on course?  Please share with us in the comments!