How We Paid Off Our Mortgage Over $320K in 6 Years – Slaying the Mortgage Dragon
Here’s how the story ends…My hands were shaking as I drove to the bank last Friday, I was going down to make the last payment on our mortgage. As I drove there I keep thinking “I can’t believe we are at this point! I can’t believe we made it! We are finally at the end of this 5 year plan.”
With a confused bank teller (they don’t often have people coming in to pay off their mortgage I’m told) she said “Have a good weekend” I smiled back as I walked out and said “Oh it’s gonna be a great weekend!”
She just smiled and said “I guess so, congratulations!” I walked out of the bank, raised my hands in the air and yelled “WOOOHOOOO!!!!” at the top of my lungs. It felt amazing, the mortgage dragon had been defeated.
A little bit of background
In the grand scheme of things it’s not very long ago. Though at the same time, it seems like ages ago. Having kids will do that, they somehow bend time to make it feel like forever and at the same time make it feel like years go by in a blink of an eye.
It’s amazing! Six years ago we moved into our custom built dream house. When we moved in we had a mortgage of over $320,000 plus an energy loan of another $20K.
It was definitely a lot more than we were used to. We were sitting on a pile of debt, and it just felt wrong. My dad through his years of talking about money with me had very early on ingrained that debt was bad and should be avoided as much as possible. Now here I was, in the house of our dreams, and all I could think about was one number: 30…
30 years of paying off this house.
30 years of looking at my mortgage interest and counting down an unimaginable amount of payments.
30 years was a long time
It didn’t feel right. Honestly it was stomach churning at first thought. My wife and I managed to get through my education without loans. Now here we were with this burden. A 30 year burden.
I looked at my 2 year old and thought, “You’ll be older than me now, by the time I am done paying this off.” That’s a crummy feeling, to know you are going to be carrying around this ugly thing (the debt, not my child) for such a long time.
A quote kept sticking in my head for months… “Someone is sitting in the shade today, because someone planted a tree a long time ago” -Warren Buffett
I wanted to “Plant my Money Trees”, but I was digging a money hole
All I kept thinking was “I want to have a secure financial future. I want to be financially free”. The idea bumped around in my head for years. Then it happened… I started planting trees – literally!
We were in our new house and doing the landscaping, to save on costs I was digging all the holes and planting trees myself. If you know me, manual labour isn’t my strong suit but… I figured, 20 trees and they wanted $75 bucks for each hole, I could dig holes for a weekend and save the $1500.
A funny thing happened
As I dug these huge holes in the scorching hot sun I had a lot of time to think (about 25 hours over 2 days). I like my job, but one day I am going to want to walk away. Looking at our nice new house and our not so nice huge mortgage made me realize that it wasn’t going to happen if I had a ton of debt.
If I was debt free I would have so many choices. Work would be different because the mortgage wouldn’t keep me there. Every choice wouldn’t revolve around the mortgage and our cash flow.
Most importantly, I wouldn’t feel like I was burdened every minute of every day for the next 30 years. So, like a lot of people, I bounced the idea of paying off all my debt with the people closest to me.
Here’s the reactions I got:
“That’s crazy, think of all the things you won’t get to buy”
“Don’t worry about it, just live your life and make your payments“
BLANK STARE after BLANK STARE kept happening
It was clear many couldn’t grasp what I was talking about…
That is when I knew I was on to something!
Here’s something you should probably know about me
Here’s the thing… Most of my life my thinking has boiled down to the following thought/principle:
“If everyone is going left, I immediately start thinking what is on the right.”
It’s a thought that has help me through my life. Not always, but enough, to keep me thinking this way. I have been this way long before the “Think Different” Apple campaign, my parents’ always told me. “You see things differently than everyone else, that’s a good thing!”
My guiding principle is this:
If everyone thinks it’s impossible, you could be on the right track, or you could be crazy, dig a little deeper to see which one it is. Then take action.
That was a turning point
I have seen people with debt in their 50’s and 60’s and I didn’t want that fate for myself. I knew I had to pick a different route to avoid this. So I called my mortgage broker and asked them “What are my options for paying this down quicker”. They gave me all of them, when they were done I said “If someone did all of these they could get it paid down pretty quickly. ” My mortgage broker agreed, but it was nearly impossible. So I grabbed a spreadsheet and worked out how quickly I could pay it off. Then I reworked it and reworked it until I found a viable system that would work for paying it down. Then I turned to our budget and worked and reworked it until I had a viable solution.
The Scary Truth of a 30 Year Mortgage
When I looked at our mortgage, over 30 years our mortgage would costs us an extra $295,755 in interest over and above what our mortgage actual was. This means over 30 years we would pay nearly double of what our mortgage started out at. That’s insane! If you ever look at your mortgage schedule, you will see in the beginning it’s mostly interest so you are better off trying to put as much down as you can as soon as possible. The trouble is that when you move into a new place, it’s usually the hardest time to do pay extra money on it.
Here’s the Tactics We Used to Pay Down the Mortgage
Before I lay these out, I want to mention that every mortgage is different. When considering paying down your mortgage take a look at it and see what features your mortgage has with regards to paying it down quicker. When taking on this type of feat, I want to make sure I had a lot of options with minimal commitments.
For instance, even if I could pay down $2000 a month, I would rather keep my payment at $1000 with options of doing an extra $1000 in a match-a-payment to get to $2000. Because if I ever miss the one extra match-a-payment nothing happens, but if I miss a mortgage payment, well that’s a lot of hurt I’d like to avoid. Just saying, we like to have a wide margin of safety. Something to keep in mind as you read on.
Cut Down the Amortization
Amortization is a fancy 5 dollar word, designed to make most people fall asleep. With a mortgage it just means the length of time you will repay the loan. We decided to change ours to 25. This would increase our payment but not too much. Plus it would save us 5 years at the end and a ton of interest over time. We could have cut it down to 20 years and it would have made it quicker, but it didn’t work right then, plus I like to have wiggle room in every thing I do financially.
This was an easy one, if you are getting paid bi-weekly it seems like a given. The way it works is instead of paying your mortgage twice a month it comes out every other week. So instead of 24 payments you have 26. It’s basically like paying an extra months worth of payments every year. A little bit at a time and it adds up.
Match a payment is when you can do a second payment on the mortgage on top of the original payment. So if your mortgage payment is $800 you can do another $800 for a total of $1600 every payment. Some banks offer this, and ours did and we took full advantage of it. For nearly 3 years we paid twice the amount on our mortgage every two weeks. It got to the point that I didn’t need to ask, they would see my number pick up the phone and say “Another Match-a-payment?” I would say yes and that would be it. This was a great way to cut our mortgage in half. If you pay twice as much every time, you take down your payments by half. At the same time we started saving any way we could. This was to make sure we could accommodate any surprises that came up along the way.
15% Payment Increase
This is when you can increase your payment once a year by 15% , so if you are paying $100 mortgage payment, you can increase it to $115. Then the following year you can do the same on the $115 amount up to $132.50 and so on… For the first couple of years we increased our payment. The hard part of this was once you increase it you can’t go back down, so we wanted to make sure we had our wiggle room available. This is a good option to have. Like I’ve mentioned doing this we always play try to play it safe so after the first two we stuck more with the Match-a-Payment method.
15% Annual Lump Sum
Lump sum payments are great, some mortgages will let you do it in little chunks through out the year others will only let you do it on the anniversary of the loan. Ours was flexible so when money showed up, we put it on the mortgage. For us the lump sum was based on the total of the mortgage. That’s a lot of extra money you can put down if you can find the funds.
Changing Mortgage Rate and Term
We went with a 10 year fixed rate mortgage at first. at a rate of 5%, it was a high rate for the times, but I thought rates would be going up and I din’t want to get caught like so many people did in the early 80’s. I was not going to lose this house, so I sacrificed cost for certainty. Looking back it wasn’t the smartest financial decision but I’ve never dwelled on it. You do your best at the time. Move on… While we were doing everything else we kept putting money into a separate account for our lump sum payment. Our focus was simple it was to sock away as much as possible to get as close as we could to 15%.
Once we were 2 years in to making extra payments we jumped out of our 10 year and got into a 4 year mortgage cutting our rate down to 3%. We had to pay to get out of it but it made sense financially. Plus it had the added benefit of a ticking clock of 4 years to get it done. If you are looking for a great spreadsheet to crush your mortgage I invite you to sign up for our newsletter and I’ll send you it, plus some other free goodies too.
A Strange Problem at the End
While we were doing all of this, I started to look at, and update our mortgage schedule spreadsheet. All of a sudden (Ok, not ALL of a sudden, more like 5 years in the making, all of a sudden), I realized if I put down any more we would have it paid off earlier than we expected. I called the bank and asked, what happens if I pay it off before the term was up.
They checked and told me I would owe 3 months of interest on the original amount of the loan. Even though I was paying it off it didn’t matter. To the bank you are closing the loan before the term and that means more charges for you. So we stopped our payments and took it down to our normal mortgage amount.
Making it our focus and Priority #1
This should have really been the first one because it is truly the most important. Really the biggest factor was deciding to make it our number 1 priority. Our kids were young and we were in a new house. We decided to enjoy this unique time of life as new parents and new home owners.
Becoming debt free was our number 1 focus. This meant that bonuses, tax refunds, gifts, everything we got went towards the house. It meant a lot of sacrifices over the past 6 years. We were really boring for 6 years. At least that’s the way I felt. Our lazer focus was on paying this mortgage off. Everything else was in second place.
Hand me downs, learning to make better homemade pizza so we didn’t order out (seriously I have an awesome dough recipe if you want it), taking in cans for the change….
You get the idea. Nothing was beneath us. Anyway we could make extra money, or save money we did. We still had our fun account, but it wasn’t what we were used to. Big goals often require sacrifice.
If you can delay gratification it’s way better for you, when you do get what you are working towards later on. We saw all our friends going on trips, buying cabins and boats, quads, and pools… We didn’t wonder how they did it, we knew how. It was all fuelled by debt.
We would hear things like “It was only $99 a month” and cringe. That wasn’t the path for us. All the while, we kept on paying down the mortgage. I have literally lived and breathed slaying this mortgage dragon. My only wish was that we had got here sooner, but I think that’s always the case.
My Parting Advice If You Decide to Slay Your Mortgage Dragon
Remember: Starting any big task, like starting to pay down the mortgage, will seem impossible in the beginning. As time goes on it will get easier. Looking back on it you will think, “Hey it was pretty easy, or it wasn’t so bad”.
Take it one step at a time. That’s the way every journey goes.
The point is to get started. 30 days from now you will be happy you started today. When you are making your last payment send me a message I want to hear about it. Now we have a solid foundation to start building our family legacy. Having done this, I’m excited to begin and to share with you our journey as we go.
Did I miss any other things you can do to pay down the mortgage? Let me know in the comments below. If you are looking for a great spreadsheet to crush your mortgage I invite you to sign up for our newsletter and I’ll send you it, plus some other free goodies too.
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