There are two camps in personal finance: those who pay their mortgages early and those who don’t. We are in the first camp. Rather, we were. When we found out I was expecting, we took the interwebs’ advice and stopped making extra payments toward our mortgage, funneling the money into a Baby Fund instead.
Now that HP is here (and healthy!) and I’m back at work, we’re ready to make some new money moves. The one I’m most excited about is our mortgage. Have a peek:
Where We Are
When I bought our house, I took out a fixed 30-year mortgage for $214,000 at a 3.5% interest rate. We chugged along making payments for the first few years. Then, we started to get more aggressive, doubling and tripling our monthly payments as often as we could.
My initial amortization schedule puts us at owing approximately $191,000 at this stage in the game. Thanks to those additional payments, though, we have already shaved off in excess of an extra $20,000. Our mortgage is currently $167,000. But not for long.
Where We Are Heading
Before the year end, we are going to make a massive mortgage payment to the tune of $15,000. That is over fifteen times the amount of our regular monthly payment. It is the most aggressive mortgage move that we have made to date, and it will put us over $40,000 ahead of the initial amortization schedule.
By doing this, we effectively will be playing catch up with all of the months when we diverted money into our Baby Fund. So it feels like a bold move. It looks like a bold move. It will, no doubt, be my favorite debt-destroying click of my life. But it isn’t wildly out of character for our money management style.
We could pay more—and we still might in early 2018—but we have a few other boxes to check first. Our Roth IRAs are on track to being fully funded again, and we are still deciding on an amount that we’d like to hit in HP’s 529 for the year. We also have a fully funded emergency fund, but we are starting to have conversations about said fund. Though we have much more—a year’s expenses—in our emergency fund than most advise, I can’t help but feel that we need to increase it slightly now that our family has increased in size.
The Ultimate Goal
I would love to have a story about paying off our mortgage in five years. Sadly, we already crossed the five-year mark in this past fall. Instead, I aim to be mortgage free by the time I’m forty. It won’t lead to a nice neat amount of years it took to pay off the debt, but it feels right. Or maybe my subconscious is planning a mid-life crisis of epic proportions once I hit the big 4-0, and I just don’t realize it.
As much as it pains me to heft around six figures of debt, I firmly believe in working toward multiple money goals at once. Since I am unwilling to delay our retirement goals and other savings goals, the mortgage is here to stay. At least for now.
So Tell Me…What’s the biggest debt pay off you’ve ever made in one click? I’ll throw virtual confetti for you!
We took a big chunk of money we had in savings and used it to pay off our car loan, many years ago when we were working to get out of debt. It was a very rewarding feeling, for about five minutes. 🙂 We’re not paying our mortgage off early, although we do have a fifteen year mortgage, so we pay off more of the principal that way. One of the biggest checks we’ve had to write lately was the check to fix our roof–$14,000, thank you very much, of our hard-earned after-tax money. I wish it could have gone to paying off the mortgage instead!! Congratulations on your big mortgage payment! That’s very exciting!
A paid-off mortgage by 40 is very cool–and very impressive. Here’s some unsolicited advice from a schmuck down in North Carolina. Don’t go too crazy with HP’s 529. I don’t see how the current business model for higher education lasts another 18 years. I some point, probably in the next five to ten years, people will begin to realize en mass that it’s ridiculous to pay for 40 overpriced classes when you really only need 12-15 overpriced classes. More importantly, many other respected credentials will rise to compete against the vaunted BA. Things may appear dark now. But I strongly believe HP is going to inherit a much better world–at least on the education front. Thanks for another great post, Penny. Cheers.
I agree, Mr. Groovy. There are a lot of variables between now and 18 years from now. Our little one is just a few months older than HP. We are funding a 529 for her, but not at an aggressive rate. If we do this FI thing right, we should have other sources of funding for her at that time if needed. 😉
Woo hoo! I am sure hitting the pay button is going to feel awesome. And having a paid for home by the time you are 40 will feel even better.
My grandparents set up an education fund for me when I was born that somehow got “lost” through different bank buyouts. I was alerted to it my last semester of grad school and was able to make a $22k lump sum payment to completely pay off my student loans and car loan. It felt glorious to suddenly be out of debt completely (for a couple months until I bought a house, that is.)
Congrats on the huge mortgage payment! You never cease to impress me with your savings.
I put $20,000 towards my line of credit in one payment earlier this year! I had been saving up for a down payment on a house, and I had saved what I needed, but I decided to postpone buying a house for at least another year. To save interest, I decided to take a big chunk of the down payment and put it towards the line of credit and then to save up the money again over the next year.
Also, with respect to the emergency fund, have you thought about getting a line of credit? You’re already really well protected with your one-year emergency fund, and a line of credit could give you some extra protection in the event of something catastrophic (God forbid) without you having a large chunk of savings sitting idle. Or do you have the ability to use your advance mortgage payments as a sort of savings vehicle, which would allow you to stop paying the mortgage temporarily if you needed to?
Ways To Build Wealth
Nice work! For myself, I plan on being in camp 2. With a rate that low and then the deduction on interest (which may get lower, or go away) it mathematically is a good way to leverage debt for my situation. However, it must be an amazing feeling to get away from a mortgage and I am sure that click of the mouse was awesome. Maybe my view will change when my net worth increases and I would feel more comfortable with a. paid off house.
The good old mathematical vs. emotional argument and considering much about money management is psychological both have their merits.
Jaime @ Keep Thrifty
Paying down is such an awesome feeling. Before we sold our house we had been making regular smaller prepayments, but twice we paid bigger chunks. In 2010 we paid an extra $11,000, in 2012 we paid an extra $6,000, and in 2016 we paid an extra $7,000.
I’m so excited! I’m actually making all the clicks right now 🙂 And I hope we have a few years of big extra chunks like you guys did.
Amanda of My Life, I Guess
Wow that’s so impressive!!
The biggest debt repayment I made in “one click” was actually one phone call. it was to pay off the remainder of my car loan a couple of years ago to the tune of $7,000. It was a proud moment for me, even thought the rep on the phone told me I could have paid this lump sum at any time. Opps! (I thought I had to wait until the end.) it was still such a relief though to have one less debt to worry about!
Kudos Penny. I’m in your camp on paying off all debt, including mortgages, with expediency. The biggest debt we destroyed with one click was my wife’s student loan. $65k with an unexpected windfall. It was a great feeling to have her out from under that burden. Mine fell two years later (in smaller chunks 🙂 .
I also agree with Mr. Groovy. The education landscape will change before your baby enters that world. Leave yourselves some options. You can squirrel the money away in a larger than normal emergency fund, then as the time approaches reassess your options. Things will be much clearer 10-15 years from now.
A 15 times payment is incredible! I’ve only done something much smaller. I got frustrated when the smallest loan from my undergrad reached the $1000 owed mark. In a fit of pique, I paid it off. The payments were $55 a month. I just wanted it gone. I had many other student loans due to grad school, but having one at a different company frustrated me for no reason in particular.
Emily @ JohnJaneDoe
That’s terrific Penny. Getting the mortgage paid off is a great goal, it will free up so much cash flow and grant peace of mind.
After I graduated with my MBA I had $8K or so in student loans. I had paid interest + payments all through school and cash flowed my last 3 semesters, so I’d kept the cost manageable, and paid the loan in full before the first payment was due.
Our biggest payment ever was just over $23,000. We made that payment in July 2016 to pay off the remainder of our mortgage. We did not get it paid off by 40, we were 43 and 45.
Ways To Build Wealth
I’m gonna need to be very aggressive to keep up with this crowd. I got a very late start with my finances. Long story short I received a GED at 20 and since then pieced my life together and am now starting medical school at 27. So by the time I finish my foot and ankle residency I will be 34/35. MMMMMmmmm maybe I can get the mortgage paid off and student loans in 5 years. However, with the low rate and getting a late start it may be most advantageous to invest the remainder of my income in tax efficient investment vehicles instead.
Maggie @ Northern Expenditure
That’s a BIG CLICK! Congrats! We’re still chipping away an extra $1000-$2000 at a time. But it better be dead by the end of 2018 (so help me). We’re at year 8 now, so certainly no newsworthy story here either!
the Budget Epicurean
Well done y’all! Big debt payoffs are a GREAT feeling. We made the choice to get rid of the PMI in one fell swoop (we did 10% down) to the tune of $11,000, and it just felt so freeing. I know that basically just “caught us up” to if we had put 20% down to begin with, but we intend to do extra double and triple payments as often as possible for the rest of the loan. And seeing it all go towards principle and NOT interest is sooooo satisfying.
Shawn @ ThesmartFi
Death to all debt. I’m with you on the mortgage paydown. By clicking that $15k principle payment you cut $43.75 off of your interest payment next month and moved it to principle payment for future months. Your ROI will be $43.75 x the months remaining on your mortgage. Great job.
It is so freeing!