Our dream of home ownership became a reality in January 1993, just one month before my wife and I got married. We bought a 1,346 square foot new build house for about $75,000. After just a few years in that house, we moved out of state and I used the $18,000 gain from the sale to buy some land.
Unfortunately, that out of state job didn’t work out and we needed those funds to live. So we rented for 6-7 years and bought our current home in 2002. We built our 2,125 square foot house with a loan for $223,000. When we bought our current home, we were basically broke and could only put down a small amount for a down payment.
We refinanced that loan a couple of times since 2002. Periodically, we’d apply $50-$100 extra to the loan payment. It wasn’t much but we felt it would help chip away at the mortgage principal. We had faith that we’d eventually be in the position we are today trying to pay it off.
In 2015, we refinanced again (3.5%) but this time with a 10-year loan that would coincide with my retirement date of 2025. We had our path to a debt-free retirement with that plan. But again, things changed and I just felt like the mortgage needed to go away faster.
In 2021, we’ll be debt-free. No mortgage, no car loans, and no credit card debt. In fact, just 2 days ago I paid off one of our cars and the other will be paid off in a few months. The cashflow will really flow with the reduced expenses.
Why An Early Mortgage Payoff?
The plan was already set to have the mortgage paid before my retirement in 2025. But economic times are rough now and you never know when/if you’ll loose your job. It will feel good to know the house is paid off just in case. Also, stock market volatility is very high and it will provide a risk-free guarantee going toward the mortgage.
Plus, it’s still possible I may have to move for the final 4 years in my corporate job. A paid-off mortgage gives me more options and the possibility of me saying “I’m not moving, boss.” And the extra cashflow will enable me to put my savings rate in the 60%+ range my last few years of working.
Just last week I found out my next-door neighbor (a doctor) is retiring in 6 months. And he told me that he just refinanced his mortgage. That’s the predicament I never want to have going into retirement.
Plus, I’ll free up over $20,000 per year in principle and interest payments. That means I need much less in retirement assets to service a mortgage in retirement.
If I work another 4 1/2 years, that means I’ve got a finite $550,000-$600,000 after taxes to spend. One way or another that $53,000 mortgage is going to be paid-off. After accounting for current lifestyle expenses the rest goes toward retirement savings. And finally, it makes me feel less stressed to have it paid next year so that trumps everything.
The 2021 Plan
The last 6 months, I’ve been redirecting some retirement savings toward the mortgage. This plan has allowed me to have a savings rate of ~40% versus the 45-50% track I was on. With the extra I’ve paid in 2020, it now makes an early 2021 payoff possible.
After running the numbers in the early payoff calculator at my bank, a $34,000 one-time payment in March does the job. Regular payments next year and the big principle payment in March is the plan. I do that and the mortgage will be paid in December 2021.
I could have increased my payments significant in 2021 but that didn’t save me as much interest. Lets face it, I don’t have much interest left to pay on a $53,000 loan at 3.5% rate. But $2,000 saved is still helpful.
This plan means it will have taken me 19 1/2 years to pay off my mortgage. It’s getting done but I did it the hard way. A simpler path would be to pay an extra $290 per month in principle for the same 19 1/2 year payoff. Sometimes though, life isn’t so simple. That’s what happens when you have kids, college, and other life events that want that extra $290 per month.
Summary
You’ve read it often in this blog when I say payoff your mortgage before retirement. In fact, be debt free going into retirement. It just makes life so much easier, predictable, and less stressful.
Sure there a many roads to retirement planning. And it’s very possible you’ll take the scenic route too. Rarely is it a straight line with no issues along the way. Life is funny that way.
Most of us will lose a job (or two) in our lifetime. Paying for your kids college is tough. It’s hard for sure but it can be done, so never give up the dream of being debt-free.
In 12 months I’ll be writing about my debt-free life. I’m sure we’ll clank some wine glasses for a joyful toast. I can’t tell you how I’ll feel but I’m sure my chest will be less tight and my shoulders will have less weight on them. I’m hoping I’ll be able to breathe better knowing the bank can’t ever take my house away.
Thanks for reading!
Mr. TLR