Progress to Date

  • Original Loan Amount: $204,000.00
  • Balance at Beginning of 5-year Goal (1/1/08): $188,983.82 @ 6.00%
  • Balance at Refinance in February 2009: $148,000.00 @ 4.625%
  • Outstanding Balance: $0.00 (PAID IN FULL!!!)
  • Latest Payment Date: April 2011
  • Latest Additional Principal Amount: $17,623.22
  • Amount Ahead of Schedule (since refinance): $121,462
  • Time Ahead of Schedule (since refinance): 7 years 10 months
  • Interest Saved Last Month: $23,972.48
  • Total Interest Saved: $28,435.55 ($1,037.74 on original mortgage; $27,397.81 on current mortgage)
  • Months Remaining in 5-year Goal: 20
  • Average Monthly Principal Needed to Meet Goal: N/A (Goal achieved)
  • Progress List Explained

Sunday, December 28, 2008

2008 in Review

Year One is finished. Our mortgage is one-fifth closer to its death. Although paying down a long-term debt can seem like a maddeningly slow process at times, I am surprised at how quickly the past twelve months have passed. I'm pleased with the progress we've made so far, and look forward to continuing the attack on our mortgage in 2009.

Although I never published this in any previous entry, my goal for 2008 was for us to pay down one-fifth of the balance at the beginning of our project. This amount was $37,796.76 (one-fifth of $188,983.82). We actually reduced the balance by $40,940.03, which means we achieved 108% of our goal in 2008.

  • Of the $40,940.03 we paid toward the mortgage debt, $30,500 came out of our own pockets as extra contributions against the balance. This was an average of about $2,540 per month. Our highest extra amount was $5,000, and our lowest was $750. I'm glad we didn't have to skip payments in any month this year.
  • The remaining $10,440.03 came from our regular monthly payments (the principal portion of each required installment). At the beginning of 2008, the principal portion of the regular payment was about $775; by the end of the year, it was over $950. If we had not made any additional principal payments, this number would have only been about $820 by December 2008. The difference between those numbers represents our interest savings each month (I publish that in the monthly summaries).
When we started this project, I calculated that we would need to pay $3,149.73 per month in order to retire the mortgage within five years ($188,983.82 divided by 60 months). Today that number stands at $3,084.25 ($148,043.79 divided by 48 months). In early 2009, the principal portion of our regularly monthly payment will start to exceed $1,000 per month. This means we'll only need to come up with around $2,000 extra each month to achieve our goal. Since we managed to average well over $2,500 each month in 2008, I am hopeful that our progress in 2009 will continue on the 2008 pace.

Our biggest change in 2008 was selling our second car and becoming a one-car family. This hasn't affected our lifestyle as much as I originally thought it would. Aside from needing to plan our trips more carefully, I haven't felt like we've lost much in the way of freedom. We're spending time together in the car now, which suits me just fine (I like my wife's company).

My wife and I have talked about how we've shifted our behavior so we don't automatically buy something if we sense a need (or want, whim, desire, etc). We discuss our purchases together and decide whether spending money on a particular item or service is our only option. We also think of money in terms of time. Every $1,000 we spend roughly equates to one month less on our mortgage. If we're tempted to buy something that costs $250, for example, we ask ourselves if it's worth potentially postponing our debt-free lifestyle by another week in order to make that purchase (although the answer is sometimes "yes", more often than not, it's "no").

Overall, I would say that Year One has been a positive experience. I've paid more attention to our spending in 2008 than I ever had before. I learned that if one of us lost our job, we could still get by on a single income for an extended period of time if needed (though without the luxury of paying extra toward the mortgage). This is reassuring now when there is so much uncertainty in employment, stock markets, housing markets, and the cost of living. In a way, making the decision to pay down our mortgage has insulated us somewhat from this turmoil, as we have a plan for our future success and are on track to see it through. Our family and friends have been (mostly) supportive of our efforts, which contributed positively to this project.

My wife is a wonderful partner, and has helped me stay focused when the stress of work or unexpected expenses frustrated me along the way. She's shown enthusiasm for cutting our spending, and is focused on increasing our income as well. Thanks, baby, for all of your hard work and determination! I love you.

Monthly Summary: December 2008

December was a great month for killing the mortgage. We were able to make a very nice extra payment of $5,000. Two factors worked in our favor. First, my wife receives a paycheck every two weeks, and due to the luck of the calendar, she was paid three times in December. Second, I was fortunate enough to get an end-of-year bonus at work. I wasn't sure if bonuses would be available this year, so I was thrilled to learn that I earned one. I feel very fortunate that both of us are still employed and earning a decent income at a time when the news is filled with stories of job cuts and economic hardship.

The December payment was the 32nd of 180 scheduled payments on our 15-year mortgage, and the 12th since we set our five-year goal at this time last year.

We started December with a balance of $153,995.28. By adding $5,000 to our regular monthly payment, we reduced the principal by $5,951.49. This brought the outstanding debt to $148,043.79 at month's end.

We are $31,679 ahead of where we would be if we'd never made any extra payments against our mortgage. If we abandoned this project now, we would still be able to retire the loan two years and 11 months ahead of schedule.

We saved $132.73 in interest last month, which brings our total interest savings to $879.34 since the start of the project.

Because we exceeded the average payment from last month, the new average monthly principal amount required to pay off the debt within our goal period fell to $3,084.25.

Although I plan to expand on this in a separate entry, I'm pleased to report that the December payment allowed us to exceed our first-year goal! Hooray!

Friday, December 5, 2008

Bicycling to Work in 2008

Thanks to shortened daylight, I stopped riding my bicycle to work during the last week of October. I'm concerned for my safety riding in darkness through a couple of congested areas. It's also been getting pretty cold here in New Hampshire, and icy roads will start to make an appearance in the very near future. Since I stopped riding, I've been driving the car to work, and picking my wife up from her job on the way home from work (she gets a ride from a co-worker each morning).

I really miss pedaling home each afternoon. Instead of dealing with the afternoon traffic jam, I rode down gravel trails, through wooded areas, and on residential back roads. Instead of arriving home frustrated by the antics of other drivers, I'd feel refreshed from the exercise. The opportunity to be alone with my thoughts for about 30 minutes was a great opportunity to shift my focus away from the work day and toward my free time at home. And beer from the fridge tasted much, much better after I'd burned off some calories (and worked up a thirst for it).

I bought the bicycle in the spring of 2007 with the intention of riding to work about half of the time. This was before my wife and I had decided to wish Death to the Mortgage, so we had two cars back then. My cycling goals were to get in better shape, to spend less money (on gas and maintenance for operating the car), and to create less pollution and carbon emissions. I rode to work about two or three times a week, in good weather, and got a taste of the demands of commuting by bicycle. Unfortunately my cycling experience was cut short last year when I was injured midway through the summer. So the bicycle sat in the garage and collected dust for about seven months.

By the time 2008 rolled around, my wife and I were toying with the idea of selling one of our cars and becoming a single-car family (which we did), so I decided to commit myself to relying on the bicycle as my primary form of transportation to and from work during the warmer, brighter months of the year. I started out in late March, pedaling along in a hat, thick gloves, and boots. The hat and gloves kept my body warm; the boots protected my feet for the last 1.5 miles of the commute, where I had to walk/ride my bicycle through the melting snows of early spring (still lingering on the wooded trail). Riding a bicycle through snow is difficult. Riding one through icy slush in the shadowy woods is near impossible. But it still beats morning traffic!

I rode through the cold, the heat, and the pouring rain. I rode up steep hills and relished the cool rush from coasting down the other side. I got into the best shape I've been in since I was on the swim team in high school (and I was in great shape back then). And I enjoyed it so much that for the first time in a very long time I didn't mind getting out the door in the morning, since the fun bicycle ride was ahead of me. (If only I could have been going somewhere more interesting every day.)

Depending on the route, my work is between 7 and 10 miles from our house by car. My average bicycle ride was about 8 miles each way. My commuting time increased from about 10-20 minutes each way in the car (depending on traffic) to about 30-40 minutes each way by bicycle (depending on my energy level), although the walk through the snow added about 20 minutes to the route during late March and early April. Between March 24 and October 24, I relied on the car to get to work only about ten times (for a variety of reasons, including a snowstorm, being run down by a bad cold, and the occasional flat bicycle tire). In total, I would estimate I avoided putting about 1,800 miles on the car this year, calculated thusly:

  • Average 16 miles per day not driven to and from work
  • Average 16 days per month I would have used the car (some days would not have required the car, as I either worked remotely from home, took a bus to Boston, or was on vacation/holiday)
  • Seven month duration (March 24 through October 24)
  • 16 * 16* 7 = 1,792 miles not driven
My wife also used her bicycle to go to and from work on occasion, but certain factors (especially the absence of a shower at her work) limit her ability to ride in all weather. Still, there were a number of days during the pleasant late-spring weather where both of us pedaled to work and left the car(s) sitting idle at home.

I can see from my expense spreadsheet that we spent less on gasoline during the summer of 2008 than we did during the summer of 2007, even though the price of gasoline was considerably higher, and we drove over 3,200 miles to and from Minnesota this July.

Looking back at the goals I had in mind when I purchased the bicycle, I can gladly say that I met all three during 2008. I got in great shape, spent less on the car's operating expense (fuel), and avoided 1,800 miles of exhaust from combustion.

I'm looking forward to the return of Daylight Saving Time (March 8, 2009) so I can start preparing to ride again. I'm also looking forward to the eventual Death of the Mortgage so I can regularly ride my bicycle to places more satisfying than the office!

Sunday, November 30, 2008

Monthly Summary: November 2008

Another month has come and gone. I've had plenty of thoughts rattling around inside my head recently, but for whatever reason I haven't been inspired to publish any of them. At the very minimum I am committed to posting these monthly updates. I expect someday I'll return to more frequent entries, but for now it's been nice to take a little break from the blog.

November was not as as much of a challenge for us as October was. However, without any extra income during these fall months, the best we can seem to do these days is to make relatively modest contributions toward the mortgage, when compared to the amounts we were able to save earlier in the year.

The November mortgage payment was the 31st of 180 scheduled payments on our 15-year note, and the 11th since we set our five-year goal.

We began the month with an outstanding balance of $156,185.82. We made an extra principal payment of $1,250, which brought the total amount applied to the debt to $2,190.54 in November. This payment reduced the balance to $153,995.28 by the end of the month.

We're now $26,547 ahead of schedule on our mortgage, and would pay off the loan two and a half years early if we ceased all extra payments at this point.

We saved $125.85 on our November interest, which means our total interest saved since the beginning of the project now stands at $746.61.

The average monthly principal payment required to meet our five-year goal rose again this month to $3,142.76.

With one month remaining in 2008, we must reduce the loan balance by $2,808.22 in December to meet our goal for the first year. I am still optimistic that we can meet this goal, since we anticipate a small amount of extra income next month.

Sunday, November 2, 2008

Monthly Summary: October 2008

I have mixed feelings about our progress in October. On one hand, at mid-month I was unsure if we'd be able to make any extra principal payment at all; and yet, we were able to make a modest payment above and beyond the minimum required amount. But on the other hand, we've definitely lost the extra cushion we once had on our 2008 goal because of the smaller payment this month. It could be a struggle to meet our goal with only two months left in the calendar year.

Last week we made the 30th of 180 scheduled payments on our 15-year mortgage. This was the tenth payment since we set our five year-goal.

At the beginning of October, our outstanding balance was $157,867.95. By adding $750 to our regular monthly principal payment, we reduced the loan amount by $1,682.13, to $156,185.82.

We are fortunate to be over $25,171 ahead of schedule on our loan at this point. We'd pay the debt off two years and four months early even if we abandoned the project right now.

We saved $121.50 in interest during October, bringing our cumulative interest savings to $620.76.

I'm disappointed to see that the average monthly principal payment required to meet our five-year goal rose to $3,123.72.

To meet our debt reduction goal for 2008, we still must bring the balance down by $4998.76, or just under $2500 per month for the next two months. This is within our reach, but any other unexpected expenses could seriously jeopardize our ability to achieve this first-year goal. Controlling holiday spending could be the deciding factor.

Monday, October 13, 2008

Life Goes On

Two Fridays ago my sister called me at work with news that my grandfather had died. My wife and I took bereavement leave and arranged to fly down to Texas to attend the funeral. We visited with family, and helped my parents, aunt, and cousin begin the unwelcome task of cleaning out my grandfather's house.

Following the funeral, we attended a reception with family, then went out to dinner. My wife turned on her phone to call and check on our dogs (they were staying with a friend), and found a voice message from her father stating her grandmother had been hospitalized. We were not scheduled to return home right away, so for the next two days she was in close contact with her family, hoping for good news about her grandmother's condition.

We flew back to New Hampshire on a late flight, arriving at our house at 2 AM, then woke up the next morning and drove two hours to my wife's hometown to be with her family. Her grandmother fortunately made a recovery and was able to return home. After more than a week of family gatherings, we made our way back to our house with mixed emotions, yearning for a night of good sleep.

We probably won't be making a meaningful extra principal payment this month. Last-minute airfare is rarely inexpensive, and in today's economy the airlines are not willing to offer discounts for funeral travel as they did in the past. After including the cost of a hotel, a rental car, meals, and other miscellaneous expenses in Texas, along with the gas, food, and other purchases we made in my wife's hometown, we spent around $1,500 this month which was not in our budget. This is coincidentally the same amount I was hoping we'd put toward our mortgage in October (above and beyond our normal payment).

I asked my wife if we should use our emergency savings to pay for the funeral trip, so that we could stay on track to meet our 2008 mortgage prepayment goal. After a discussion, we decided that while the expense was unexpected, it was not truly an emergency. That money is reserved for loss of income, health-related bills, or sudden expenses that must be covered quickly in order for us to keep our home and our jobs (for example, if our furnace suddenly breaks in the middle of January). And since we were slightly ahead of our 2008 goal after September, we decided to take the hit on the mortgage in October, and focus on minimizing our spending through the end of the year. If we somehow are able to make any additional payment on the mortgage this month, I will consider that a bonus.

Although this blog's title may sound morbid, Death to the Mortgage is ultimately about life. My wife and I are taking steps to gain control of our financial life now, so that we can have the freedom to enjoy the rest of our lives together, unencumbered by debt. As our grandparents reminded us last week, our time in this world is finite. We want to make the most of the time we have left. We believe that retiring our mortgage debt early is an important first step toward achieving our dreams.

Granddad, thanks for the memories. You are loved, and will be missed.

Tuesday, September 30, 2008

Monthly Summary: September 2008

Goodbye, September. Goodbye, summer. Hello, autumn colors and baseball playoffs.

Without any extra income forecast in our budget for October and November, we made a smaller-than-normal extra principal payment in September. This keeps a buffer in our bank account while still allowing us to make another modest dent in the mortgage balance.

The September payment was our 29th of 180 scheduled payments on our 15-year loan, and the ninth since we set our five-year goal.

We started the month with a balance of $160,287.98. A $1,500 extra principal payment when combined with our regular monthly principal amount brought the total principal payment to $2,420.03 in September. The outstanding balance fell to $157,867.95.

We are over $24,299 ahead of schedule on the mortgage. If we abandoned this project now and made minimum payments for the duration of the term, we'd still pay off the loan two years and four months early.

This month we saved $113.43 in interest. To date we've avoided $499.26 in interest payments.

The average monthly principal required for us to meet our five-year goal rose slightly to $3,095.45, as we didn't match the amount required from last month. However, despite our underachieving September, we're still in good shape to meet our goal of a $37,796.76 reduction in principal in 2008. We have three months left this year to bring the balance down another $6,680.89, which amounts to $2,226.96 per month. This is consistent with the smallest total principal payments we've made during the past nine months, so I feel confident we can achieve our goal for Year One.

We're going to watch every penny over the next few months to stick within our budget. After nine months of our more frugal lifestyle, it's becoming easier and easier to resist the desire to spend.

Saturday, September 20, 2008

Bicycle Maintenance

I spent a couple of hours in the sunshine today working on my bicycle. When we were visiting my family in August, my brother-in-law gave me a demonstration on how to adjust the disc brakes, shifters, and other moving parts on his bicycle. I came back excited to do the same work on my own bike, and found that my components were different, which initially discouraged me. I had been procrastinating recently, but over the past week the brakes became noticeably less responsive, so today I pulled out all of the literature that came with my bicycle and read through it, beginning to end. It was descriptive enough for me to (eventually) figure out how I could make the necessary adjustments on my own. I'm glad I had seen my brother-in-law's demonstration, because it would have been much more difficult to perform the maintenance on my bicycle relying only the printed material. Now my brakes are tight, my gears shift nicely, and my chain is clean and silent.

I definitely belong to the low-cost school of bicycle maintenance. While a true gearhead would mount the bicycle on a repair stand in the garage (to hold the wheels off the ground with the moving parts at eye level), I wheeled my bicycle to the end of the driveway and turned it upside-down, letting it rest on the seat and the handlebars. I will confess to spending $10 last month to buy a multi-purpose bicycle maintenance tool (with hex-heads and screwdrivers of various sizes), but otherwise I didn't have to spend any new money to do the repair work. I'm not sure what the bike shop would have charged for a tune-up, so I don't know how much money I "saved" by doing the work myself. Although avoiding the repair bill was nice, I really appreciated staying at home instead of dealing with the hassle of riding (or driving) the bike down to the shop. I got to enjoy my own space, in the company of the dogs (resting in the grass and enjoying the sunshine and nice cool weather). And, of course, I had the satisfaction of learning a new skill which I hope to continue to improve on in the future. I'm also pleased to report that I'm now adept at replacing innertubes (a task which once seemed daunting to me).

I don't know how much longer I'll be able to rely on the bicycle as my primary mode of transportation this year. I started riding to and from work during the last week of March, after daylight saving time had already started, when the days were growing longer. Though we're still at least a couple of months away from lingering snow or ice here in New Hampshire, the arrival of the autumnal equinox on Monday means that I won't have as much sunshine to light my way (and keep me visible to drivers on the road). Daylight saving time ends on November 2 this year. The US Naval Observatory has a website which provides daily sunrise/sunset data for any spot in the world. For example, on October 31, the sun will rise after 7 AM here in NH, and will set before 6 PM. This means I could be riding in semi-darkness before and after work. Just after the return to standard time, on November 4, the sun will rise before 6:30 AM (fine) but will set around 4:30 PM (dangerous). If I want to ride in November, I am definitely going to need illumination, for my own benefit (to see where I'm going) and the benefit of those around me (so drivers don't run over me with their cars). I haven't decided yet what to do. I don't want to spend a bunch of money buying new illumination gadgets for the bicycle if I'm only going to be able to use them for a few weeks anyway. By December I'm sure it will be icy enough in the mornings that I'll have to stop riding altogether. At least I have a beautiful companion (my wife) to carpool with during the winter months!

Wednesday, September 10, 2008

Controlling Spending

Even though we've managed to make steady progress during the first eight months of our five-year goal period, my wife and I realize we had some help along the way. First, we sold our second car back in May, resulting in a one-time cash receipt. And second, my wife worked a second job for a few months during the summer, but that's finished, and we probably can't count on that income again until June 2009 at the earliest. For the rest of 2008, we will be relying solely on our regular income to generate extra principal payments. This means that watching our expenses will be critical if we want to stay on our current pace. We both have a list of items that we'd like to have right now, but we're going to try to cut back on (or eliminate?) anything that falls into the "want" category unless it truly becomes a "need".

For example, my hiking boots have started to show their age and will probably not last another full hiking season (this means that the seams in the leather are starting to split open and will eventually tear free from the sole). However, with winter coming, I won't be using them as much as I have been recently (just some light autumn day trips and the occasional walk in snowshoes during the cold months). Therefore, I'm going to defer that expense for as long as possible, keeping a eye out for any sales which would reduce the cost of the new boots significantly. Meanwhile, cash that might have been used to buy a new pair of boots (at full price) in September will be used to pay down the mortgage. While the cost of boots is insignificant compared to our outstanding mortgage balance, when combined with all of the other expenses we're deferring or eliminating, the cumulative effect should help us stay well-positioned to meet our goal.

Note: I realize not everyone would classify hiking boots as a "need". I am using a broader definition of "need" which is not limited to survival items, but which includes things we use regularly. By this definition, the first pair of hiking boots is a "need", while the second pair is a "want".

Monday, September 1, 2008

Monthly Summary: August 2008

As I mentioned in my previous entry, the $1,500 extra principal payment we sent to our lender during the first week of August was credited against the July balance. I've updated the July Summary to reflect the correct totals.

The August payment was the 28th of 180 scheduled payments on the 15-year mortgage. It was our eighth payment of the 60-month goal period.

Our outstanding balance at the beginning of August (adjusted) was $164,188.51. Through a combination of lower expenses and extra income, we were able to make an additional principal payment of $3,000 this month, for a total principal payment of $3,900.53. This reduced our debt to $160,287.98.

We now find ourselves $22,686 ahead of schedule on our payments. Our work so far has reduced the term length by 2 years and 2 months.

We saved $97.94 in interest this month, bringing the total interest saved to $385.83.

Because we paid more in August than the average principal required to meet our five-year goal, the new average payment amount fell to $3,082.46.

I'm very encouraged by our progress so far in 2008. With two thirds of the year now behind us, we find ourselves ahead of our goal pace for the first eight months. Let's keep this train rolling!

Saturday, August 30, 2008

Good News

I sent the August mortgage payment to the lender earlier this week. After checking the interest amount they charged for August, I was able to determine that the $1,500 extra principal payment we sent during the first week of the month was in fact credited against July's balance, not August. This is good news for us because we get the benefit of one extra month of interest savings on the $1,500, which will continue to compound until the mortgage is paid off.

My latest guess is that any payment we send to the lender (whether a normal payment or an extra principal amount) which is received prior to the late date (the 15th of each month for us) gets applied to the prior month's balance. I'll continue to test this hypothesis going forward as conditions warrant.

I'll go back and update July numbers to include that extra principal amount in the near future. I'll also post our August summary by the end of this long holiday weekend.

Wednesday, August 20, 2008

Payday

It's been a quiet August around here. My wife recently received the final paycheck for her summer contract work. That puts us in great shape to make a decent payment to principal this month.

On a similar topic, both of us received raises over the summer. If we stick to our pre-raise budget (always a challenge) then the extra cash should help us keep the momentum going as we move into the autumn months.

Enough with the typing; now back to watching the Olympics!

Monday, August 4, 2008

One Week Too Late?

So, as I predicted in my previous entry, my wife's paycheck was in the mail today. She dropped it off at the bank this afternoon. I scheduled an extra principal payment of $1,500 to occur by the end of the week. I won't know whether the lender will apply it to the balance in July or August until we receive the August statement. And that won't happen until I send the standard payment for August (which probably won't happen until the last week of the month).

My prediction is that they will consider it part of our August payment, since we've already received the statement for July. But I'll be pleasantly surprised if they honor the 15-day grace period and credit it retroactively to the July balance. More to come on this in about a month.

Thursday, July 31, 2008

Monthly Summary: July 2008

***Update September 1, 2008***
The $1,500 principal payment we sent to our lender in early August 2008 was credited against our July balance, and therefore the numbers I originally listed for July turned out to be wrong. Here is a quick snapshot of the corrections:

Additional Principal Amount: $1,500
Total Principal Payment: $2,388.58
Amount Ahead of Schedule: $19,588
Interest Saved in July / To Date: $89.99 / $287.89 (no change)
Average Principal Payment Required to Meet Goal: $3,097.90 (slight increase from June)
Outstanding Balance at End of July: $164,188.51
***End
Update; Original Entry Follows Below ***

July marks the first month since my wife and I began this project in which we did not make an additional principal payment. There are three primary reasons for this:

  1. Since my wife was paid in advance for some work at the beginning of the summer, we already made a large payment to principal during June. I could argue that we've already made our extra payment for July (but I won't).
  2. We paid most of the cost of our vacation during July. This expense reduced the extra cash we had to contribute toward the mortgage this month.
  3. My wife isn't going to be paid for her July contract work until August due to the mysterious nature of her employer's payroll calendar. I expect we will be able to make a slightly-larger-than-normal additional principal payment next month.
When it became clear to me that we wouldn't be receiving my wife's paycheck in time to put it toward an extra payment during July, I reluctantly made our standard (aka minimum) payment a few days ago. This is how we paid our mortgage during the first 19 months we lived in this house, but it felt odd not to be adding something additional this time around. I guess I've already shifted my expectations so that extra payments are the the rule, not the exception.

And so, our July payment was the 27th of 180 scheduled payments on the 15-year loan, and the seventh since we set our goal to rid ourselves of the debt within five years.

The balance at the beginning of July was $166,577.09. As previously mentioned, we did not make an additional principal payment, so our standard payment reduced the overall balance to $165,688.51 at month's end.

Despite skipping the extra principal contribution this month, we are still about $18,088 ahead of schedule on our payments. And because of our prior efforts to date, we still saved $89.99 in interest this month, bringing our total interest savings to $287.89 so far.

The average principal payment we need to make monthly to meet our goal rose to $3,126.20.

If we receive my wife's paycheck before the 15th of August, I'll go ahead and send it to the lender in hope that they will apply it toward July's balance, since that would fall within the grace period. I'm not clear how our lender handles additional principal contributions received during that window, so it will be an interesting experiment (interesting to me, at least).

The sunset on the last evening of July is beautiful here in New Hampshire. Here's to a wonderful August.

Friday, July 18, 2008

Extra Scratch

My wife just returned from a week-long business trip. She's taken on additional work this summer to bring in some extra income and explore the possibility of a future career change. Later this month she is committed to another week-long stint with the second job. She has to file an expense report before getting paid for her recent work. Because of that, I am not sure whether we will be able to make an additional principal payment on the mortgage in July, or if (due to the time associated with processing her check) we will have to wait and make a more sizeable contribution in August. My hope is that the check comes in while we still have time to pay in July, so we can save one more month of interest on the principal reduction.

When attacking a fixed-rate mortgage, it's best to make payments as early as possible to maximize the compounding of interest saved over time. For example, every $1,000 of the loan at a fixed interest rate of 6 percent will accrue $5 in interest charges each month the balance remains unpaid (0.06 divided by 12 months, multiplied by $1,000). Over five years, a principal reduction of $1,000 will result in $300 total interest savings if the debt is paid off in month 1, versus only $60 in savings if the debt is paid off at the beginning of year four (month 49).

My wife is exploring her options with the second job right now. I haven't yet included her projected summer income in our budget for the rest of the year. Once the checks do finally arrive, I expect her to take some personal fun money off the top since she made the extra effort to earn it. She told me that whatever remains will be directed toward the mortgage. I look forward to seeing the outstanding balance continue to drop during the coming months. I'm also thrilled to have a partner who is fully committed to aggressively eliminating our last remaining debt.

Wednesday, July 16, 2008

Not This Year

Today in the mail we received the annual automobile registration renewal form from our town. This bill was for the car we sold back in May. Most of the financial benefits that come from living the one-car lifestyle are easy to overlook (fewer repair bills, less routine maintenance, fewer trips to the gas station), so it's nice to get such a direct reminder that we are, in fact, spending less on car ownership now than we had in the past.

That's $175 that we can use for something else in 2008! Any guesses as to where I plan to direct the surplus?

Sunday, July 13, 2008

Royale (with Cheese)

My wife and I recently returned from our big vacation trip of 2008. We packed up our little car and drove from New Hampshire to Grand Portage, Minnesota, where we caught a ferry to Isle Royale National Park, which is located in the middle of Lake Superior. On the way to Minnesota we stopped in Chicago to visit with some friends for a day. Our goals for the trip were to have relatively low-cost (or free) experiences, to see a new part of the country, and to enjoy ourselves. We accomplished all three.

There were three main expenses associated with the trip: the cost of driving to and from northern Minnesota, the cost of taking a ferry to and from Isle Royale, and the cost to have someone watch over our dogs in our absence. Our main activities while on the island were backpacking (hiking and camping). Since both of us like to do this on a regular basis, we didn't need to buy much in the way of new gear, though we did spend some money to purchase a few key items (a new backpacking stove and a new water filter). We also replaced my wife's old sleeping bag and backpack, but we partially offset the expense of the new equipment by selling her old stuff.

Here is the expense report for the trip:

  • Round-trip ferry fee (two adults, paid in February): $248
  • Park user fee ($4 per person per day, paid in February): $56
  • Gasoline: $341
  • Highway tolls: $48
  • Vehicle maintenance: $229
  • Lodging (Grand Portage, MN): $43
  • Meals (including treating our Chicago hosts to dinner): $114
  • Entertainment: $14
  • Gear (net cost): $204
  • Pet care: $358
The total above comes to $1,655, or about $828 per person. Our trip lasted 11 days, so the cost per person per day was about $75. Since we paid for the ferry and park fees back in February, we were able to spread some of the cost over several months. Because our car was due for a tune-up anyway, I was unsure whether or not to include the vehicle maintenance cost in the overall trip expense list; but given that we drove over 3,200 miles round-trip, we put enough additional wear on the car that we'll be taking it in for regular service again soon. Therefore, that expense stays on the list.

Given the experience we had, I'm satisfied with the cost of the trip. Of course, we could have stayed home the entire time and potentially had around $1600 more to put toward the mortgage, but we both feel it's important to treat our vacation as part of the yearly cost of living, and we've been budgeting and saving for this trip for months. While on the island, away from the stresses and pressures that make up our daily lives at home, we were able to make lasting memories, catch a glimpse of the natural world unspoiled by human exploitation, and simplify our day-to-day thought processes (our most complicated daily decisions were which campground to hike to and which meal to cook for dinner). The rewards we received from taking the trip were definitely worth more to us than the potential benefit of a $1,600 reduction in our outstanding mortgage balance.

For those with a love of the outdoors, an interest in seeing wilderness for miles in any direction, an appreciation for peace, solitude, and simple living, and a desire to challenge yourself physically, Isle Royale is a great place to spend a week (or more). I highly recommend it. It's a shame that there aren't many truly wild places left in the world, but this island is about as close as you can get to an unspoiled landscape in the lower 48 states.

Friday, June 27, 2008

Monthly Summary: June 2008

The June summary comes a few days early because my wife and I are headed away for vacation and will be without internet access for a little while.

June's payment was the 26th of 180 scheduled payments on our 15-year mortgage. It was also our sixth payment since we established our five-year goal.

We started this month with an outstanding balance of $172,436.38. We made a $5,000 (!!!) extra payment to principal, bringing our total principal payment to $5,859.29 in June. Our new balance stands at $166,577.09.

We're now $17,998 ahead of our scheduled mortgage balance. We could stop making extra payments now and still pay down the debt twenty-one months early.

This month's saved interest amount was $64.67. To date, we have saved $197.90 in interest payments.

Our average required monthly principal payment to meet our five-year goal dropped to $3,084.76.

My wife got an advance payment for some summer work she's doing, which helped us make a larger-than-normal extra principal contribution in June. Our July and August payments may be smaller than past months as a result. However, if we can focus on saving (especially during vacation), we may be able to end the summer months in great shape to meet our first-year goal.

Wednesday, June 25, 2008

Falling Equity

Every day it seems like I notice another headline about home prices falling around the US, occasionally accompanied by similar news from other parts of the world. For example, today's financial reports include an article from the Associated Press which states that sales of new homes in the US are down when measured two ways: (1) the number of homes sold, and (2) the median sale price. Similar trends are occurring in sales of existing homes.

Websites like Zillow.com track approximate prices of homes around the US. Our house's estimated price has been falling steadily during the few months I've been checking (an exercise to help establish our monthly net worth). [By the way, "net worth" is a term I absolutely despise, because it values an individual or household only by monetary assets, when a person's true worth rarely has anything to do with money; but in the absence of a better term, it seems that I'm stuck with it for now.]

Does it bother us that my wife and I agreed to pay thousands of dollars more for our house than it would likely sell for now? Not really. I owned a townhouse condo before we bought our current residence, and used the proceeds from the condo's sale as our down payment. Had we waited until housing prices moved lower before selling the condo and buying a house, I wouldn't have received as much from the sale of my previous property, and therefore, our available down payment fund would be proportionally smaller. Sure, we could have sold the condo and rented for a while, but we would have dealt with the hassle and costs associated with moving more than once. And there's simply no way for anyone to know when the housing market has "hit bottom," so what would have been our cue to stop renting and buy a house?

There are a few important reasons why I'm not bothered by the downward trend in home prices.
First, the decline in our assessed property value's translates directly into lower taxes every six months. This is the silver lining of the housing slump, and since we have no plans to move anytime soon (and turn a paper loss into a realized loss), the tax savings become a miniature windfall which we can funnel back into our mortgage principal payments.

Second, our goal is to eliminate our debt completely, which means we don't want to tap the equity in our home for any reason. I was delighted to pay off (and close) the HELOC we had used for initial expenses when we bought our house (such as replacing windows and doors). If the equity in our home falls, it does not affect our spending plan, as we don't rely on equity borrowing to finance the rest of our life.

Third, and most importantly, we didn't buy our house as an investment property; we bought it because we wanted a place to live, and really liked what it had to offer. At the time we were ready to begin our lives together, my wife and I spent months searching for the house that best suited our anticipated wants. This house continues to be a source of daily enjoyment for both of us. Its primary value is its utility: we sleep, eat, clean up, work, relax, find shelter, store and organize, entertain, provide for our dogs, and feel secure inside its walls. I'm grateful to have this place to call our home.

The June mortgage payment is complete. I'm excited about our progress this month. I'll elaborate on that in a few days.

Tuesday, June 17, 2008

Time = Money

Our summer income is going to be a little unpredictable, so I've run several possible scenarios for the next few months through my hypothetical model of our mortgage amortization schedule. I've noticed a pretty consistent relationship between extra principal payment amounts and the length of time until our mortgage is paid in full. Right now, each additional $1,000 we pay to principal translates into one month that we won't have to make a mortgage payment in the future. We've felt the desire to spend recently, as we're going on vacation at the end of the month (and we're tempted to stock up on new camping equipment). The recognition that a new $250 pair of boots represents one more week of future debt payments is helping me stay focused and committed to our goal: premature mortgage death.

Wednesday, June 11, 2008

Summer Happenings

My wife and I held a yard sale this past weekend. Even though the weather was unseasonably hot, we had reasonable success. For 5 hours of work, we earned around $75, and in the process got rid of a bunch of stuff we didn't want around anymore (including VHS movies, books, and trinkets that I was surprised anyone would ever want to buy). The $75 isn't going to make a huge impact on our savings, but considering that (a) we sold many items for only 50 cents or $1 each, and (b) we got money for stuff we were willing to get rid of for free, I'm pleased with the result. Plus, we got to meet some of our neighbors, which was an added bonus.

The escrow refund check from our lender arrived last week. I used it to buy a money market fund. I then scheduled a monthly purchase into the fund (from my paycheck) to replace the escrow amount that was previously included in our mortgage payments. Our property taxes are due July 1, so I will soon be making a partial withdrawal from our homemade escrow fund to cover that bill. We'll be left with a decent balance in the escrow fund which will grow monthly with each paycheck until the second half of our property taxes come due in December. There's enough of a buffer that I don't expect the escrow fund balance to ever dip below $1,000 (even immediately after making a withdrawal for tax payment).

The unusually hot New Hampshire weather this past week (highs in the 90s F for the better part of five days) had a lot of people hiding indoors with their air conditioners turned to high. My wife and I tried a less expensive cooling technique which worked reasonably well. In the evening, we opened all windows in the house and used a combination of two window fans upstairs to draw in the cool outside air (on the shady side of the house) and exhaust the hot indoor air (on the sunny side of the house). We let the window fans run all night long, then shut the windows in the morning to trap the cool air inside, and pulled down the blinds to block the hot daytime sun. This worked well for the first two days, but by the third day the evening temperature didn't drop enough to cool the house as much as I would have liked. I offered to turn on the air conditioning, but my wife insisted that we keep it turned off to save money. In the end it worked out just fine. We sat near fans, spent time outside with our dogs, and ventured down into the naturally cool basement when we needed to feel refreshed. Today's weather was more temperate, and it's comfortable inside our house once again.

I'm even more impressed that my wife rode her bicycle to work all three days this week, even though she doesn't have access to a shower at work. She reported being a little sweaty on arrival, but since she leaves early in the morning, she was able to avoid the worst of the heat until the return trip home (when being sweaty isn't as much of an issue). With her inspired commitment to our goal, we're saving money on energy costs by minimizing use of the car, and avoiding air conditioning usage altogether.

Saturday, May 31, 2008

Monthly Summary: May 2008

The payment we made this month was the 25th of 180 scheduled payments on our 15-year note. It was also the 5th payment since we set our five-year goal.

The balance after all "April" payments were completed was $176,276.47. The total principal amount for May was $3,840.09. This included a $3,000 additional contribution to principal (which is actually the amount from the sale of the car we decided to allocate toward our mortgage balance). Our outstanding balance dropped to $172,436.38.

We're $12,933 ahead of schedule on our payments. The mortgage would be paid off fifteen months early if we ceased extra principal payments after this month.

We saved $49.42 in interest this month. When added to our previous months' savings, I see that we are ahead $133.23 on interest since the beginning of our mortgage-elimination project.

The average monthly principal payment required to meet our five-year goal fell to $3,135.21.

As we move into the summer months, we're expecting to receive some extra income in the near future. This should help us continue to make steady progress toward our ultimate goal.

Wednesday, May 28, 2008

No Mo' Escrow

I was discussing our saving plan with a friend over the weekend. He asked if our monthly mortgage payments include a contribution to the escrow account (they do). He suggested that we might be able to remove the escrow portion from the monthly payment amount simply by calling up our lender and asking. This intrigued me, so I did just that. It turns out that since we aren't required to pay PMI, we can drop escrow at any time. The lender just keeps it there for our "convenience".

Last year we paid around $4,000 in property tax. If we can ensure that we have at least $4,000 saved at all time in a special tax reserve fund (and contribute to it monthly), we can earn interest on that money above and beyond the measly rate paid by our lender. Last year we earned about $29 in interest from the escrow balance. If we invest the $4,000 in a money market fund paying a conservative 2.00%, we could earn about $80 per year. This isn't a huge difference, but why leave free money on the table?

Also, each of the past two years we've received an escrow refund at the end of the year because our house's appraised value has fallen with the overall real estate market (and therefore our tax burden was lower than the projected amount). By taking the tax payments into our own hands, we can avoid waiting 12 months for any escrow refund payments to come through. I realize this would work in reverse if house prices were rising, but I don't see that happening in the next few years.

Finally, once we do achieve our goal and are 100% mortgage-free, we'll have to pay taxes on our own anyway. So setting up the tax payment fund now will give us plenty of practice when that day finally comes.

Because of these reasons, I asked the lender to stop including escrow amounts in our monthly payment. They are sending us a check for our current accrued escrow balance. Property taxes are due next month, so I'll be ready in time to make our first tax payment on our own.

Friday, May 23, 2008

Monthly Summary: April 2008

This "April" summary is over three weeks late, but (as I mentioned previously) I wanted to await the results of making our April payment during the grace period in May. I'm pleased to report that the Mortgage Professor was right; our lender credited the additional principal payment toward April's balance even though I made the payment during the first full week of May. This is not something we expect to do on a regular basis going forward (in fact, we've already scheduled our May payment for next week), but it's nice to know we have that option in case of a similar situation in the future.

The April payment was, by the way, the 24th of 180 scheduled payments on our 15-year mortgage.

At the beginning of April, the outstanding balance was $179,102.43. We made a $2,000 extra principal payment, which when added to the principal portion of our regular payment resulted in a total principal payment of $2,825.96. Our outstanding balance dropped to $176,276.47.

We're around $9,884 ahead of where we'd be if we'd never made any additional principal payments. If we ceased making extra payments at this point, we'd pay off the mortgage exactly one year early. This part really impresses me. We've been paying extra for about four months, and that extra principal only amounted to 4.8% of the original loan balance, but we've already taken a whole year off of our term thanks to future compounding interest savings.

We saved $39.23 in interest this month, for a total of $83.81 saved interest so far.

Our average monthly principal payment required to meet the five-year goal is now $3,147.79 (up slightly from last month).

May's payment will include the proceeds from our recent car sale. I am looking forward to wrapping up this month already!

Tuesday, May 20, 2008

Sold!

We are now OFFICIALLY a one-car family. Our second car sold yesterday. The buyers paid a little less than we were asking, but they did bring cash, and after a brief inspection of the interior and under the hood, they handed over $6,000 and left with the keys and the title. One one hand, it is a little scary to have only one vehicle between us, but on the other hand, we've been living the one-car lifestyle since February 1 of this year, so we feel that we're now ready to do it for real.

In addition to the sale proceeds, we expect to realize some significant savings over the next year by eliminating the second car from our lives:

  • I canceled the auto insurance on the car we just sold. This will save us almost $75 per month, or almost $900 per year.
  • In 2007 we spent $175 to register the car. We won't have this annual expense going forward.
  • We no longer have to pay for maintenance on the second car. At the very least, we avoid minimal routine maintenance. This might include four annual oil changes at $30 each, plus an annual tire rotation for another $30, and an inspection for another $30, to bring the total to $180. But our car was nearing 140,000 miles when we sold it, so it's likely that we would have paid for more expensive repairs in the future. And we don't have to pay for other minor maintenance like replacement wiper blades, washer fluid, air filters, and so on. My records show we paid a total of $2,250 for maintenance on both vehicles last year, so it's safe to assume that half of that cost ($1,125) could reasonably be applied to the car we just sold. I think this is a conservative estimate.
  • It's no coincidence that the vehicle we parted with was less fuel-efficient than the one we kept. Going forward, we should get better economy out of the gasoline we buy, especially if we continue to take more trips in the car together (as we've been doing for the past several months). It's hard to put a value on the fuel savings, but I don't expect it to be insignificant.
Total savings: Approximately $2,200 per year, plus the unknown savings from more efficient gasoline consumption.

Ordinarily my commute to work is about 8 miles (by bicycle or car), but today I was asked to go to an alternate office location in Boston. My company will pay for me to take a bus on those occasions, and I take advantage of that benefit. I woke up to a perfect spring morning here in New Hampshire, so I walked the two miles to the bus stop. I moved along at a casual pace, and made the trip in under 40 minutes, including the time I took to stop at the bank to deposit the cash from the car sale. I took the route through the park, listening to the bird calls and watching the flowers swaying in the breeze, and didn't miss the car at all.

As for the $6,000 sale proceeds: my wife and I decided yesterday that we would add $3,000 to our emergency savings, and use the other $3,000 to pay down the mortgage balance by the end of this month. That will put us back on track for our normal mortgage payment schedule, so the $1,000 planned additional principal payment I discussed in my last entry will be held back until June's mortgage payment.

We are masters of our own destiny.

We are on track to achieve our goal.

We will succeed because we are following through on our plan.

Sunday, May 18, 2008

Not Very Stimulating

I was expecting to receive our stimulus payment by May 16 based on this payment schedule, but for some reason it hasn't arrived yet. According to everything I've read, we should have been eligible for the direct deposit because we filed our tax return on time (in March), didn't exceed the income limit for joint filers, and had our tax bill paid by direct debit (which went out in early April). Of course, the IRS website has a disclaimer stating that "A small percentage of tax returns will require additional time to process and to compute a stimulus payment amount." Either we're part of that small percentage, or else we're getting the payment via paper check for some reason that isn't clear to me.

In either case, I've had to modify the budget for the next few months to exclude the stimulus payment. For now I'm going to assume we should have it by July if we are due a paper check. I'll keep monitoring the payment status using this page for the next few weeks, and may resort to calling the IRS if I don't get any answers. Until we receive it, I'm not counting on the stimulus payment for anything. If and when it arrives, we'll use it to pay down our mortgage balance. I am earmarking only $1,000 for our next extra principal payment as a result of the delayed receipt (previously I had been targeting at least an extra $2,000 per month).

We had some inquiries about the car this week, but it's still sitting in our garage. It's nice that we aren't in a hurry to sell, because we don't have to take lowball offers or feel pressured to work with unreasonable buyers. I'm still confident we'll find the right person to take it off our hands in the near future.

I still haven't received the final figures from our April mortgage payment to determine whether the extra principal was applied to April or May. I hope to know by this time next weekend. By then it will be almost time to make the May payment, and I want to have the right numbers in place on my spreadsheet. Yes, I am a big nerd.

Last week I changed the tube on the rear wheel of my bicycle because it had caught a small nail and was slowly leaking. Just like last time, the internet saved the day. There are a bunch of good how-to videos on sites like YouTube covering all sorts of bicycle maintenance. Although it took a bit more effort than a front tire replacement because of the chain and gears, I'm pleased to report another "do-it-ourselves" success (the wife helped out this time). Total cost of the replacement was about $4 for the new tube. I saved the old tube and plan to buy some patches at some point so that we can always have a backup (patched) tube on hand for future flats.

May is turning out to be an expensive month after all. We had a big vet bill for our dogs' annual checkup, including shots and medicine. I hope we can cut back our spending in June, because we're going on vacation in July and will be spending more for gasoline and related travel expenses.

Sunday, May 11, 2008

A Little Extra

Last week my wife received a modest pay raise at work. Although the timing was something of a surprise, we had been expecting the raise to happen at some point in the spring or summer. The raise was retroactive, so in addition to seeing a little extra in each paycheck, she also got a lump-sum payment last week to cover the months that have already elapsed since the effective date of the pay increase.

Because we didn't know when the raise would occur, I had never budgeted for it. The retroactive income will help us get back on track with our mortgage prepayment plan (not that we were all that far behind anyway).

This month we also benefited from a decrease in our auto insurance premium. The monthly payment going forward will be about $25 less than it was before. Add my wife's additional salary to that, and we'll net an extra $175 or so per month. While that's not a huge amount, it's certainly better than seeing $175 added to our monthly expenses.

On top of all of that, we have been using less gasoline since spring arrived, further cutting our expenses. Even though the cost of gasoline is much higher now than it was a year ago, we spent 47% less on gasoline in April 2008 than we did in April 2007. How did we manage to do that? I've used my bicycle to get to work almost every day since the last week of March, and my wife has commuted by bicycle regularly as well (several days per week). We're now living the lifestyle of a one-car family. Our second car is cleaned and parked in our garage, awaiting its sale. It is only a matter of time before we find the right buyer, and we can be rid of the costs associated with owning a second vehicle.

Our April mortgage payment went through last week, along with an additional principal amount of $2000. I won't know whether the additional principal was applied to April or May until I get the next statement from the lender. I'll post the April summary once I learn the answer to that question. For now, I've updated the Progress to Date section assuming the principal was applied to April.

Sunday, May 4, 2008

Catching Up

I haven't yet posted the Monthly Summary for April because we still haven't closed the books on April. As I mentioned in several previous entries, our April spending was much higher than normal due to several (hopefully) one-time charges, including the tax bill and the cost of car repair. [By the way, we ultimately decided to have the mechanic replace the side mirror, as I wasn't prepared to learn how to do that work myself in such a short amount of time.] The original plan was to skip the extra principal payment for April, resuming the attack on the mortgage in May. However, not long ago I came across this article by "Mortgage Professor" Jack Guttentag which made me realize there might be another way to avoid missing the extra payment in April.

Even though I've taken the time to learn how mortgage amortization works on my own, this article inspired me to look at the mortgage payoff strategy in a new light. It's brief, but I think Guttentag does an excellent job of detailing the important points.

  • First, it's interesting to note that there is no penalty for making a payment a few days after its "due date". There is a built-in grace period of 15 days on my mortgage. Each statement indicates that the due date is the first day of the month (for example, May 1), but also includes a second line which states that a late charge will be assessed to payments received on or after the 16th of the month (the end of the grace period). What the statement doesn't explicitly state is that the effective due date is the 15th of each month.
  • Second, an individual who pays the mortgage bill on the 15th (instead of the first) has given himself/herself "the use of [the monthly payment amount] free of interest for 15 days". This also means that a payment made before the due date (the first of the month) is an interest-free loan to the lender, as the borrower doesn't receive any benefit for making the payment several days early. Unlike the finance charges for credit cards, which accrue on a daily basis, mortgage interest accrues on a monthly basis. A payment on the 2nd is the same as a payment on the 17th, which is the same as a payment on or before the 15th of the following month (made during the grace period).
  • Third, because interest accrues monthly, it's advantageous to make an extra principal payment for the prior month during the grace period whenever possible, rather than delaying and making the payment for the current calendar month. An extra principal payment made on May 10th will have a greater impact on the overall interest if it's applied to the payment due May 1 instead of the one due on June 1, because that extra month of interest savings will compound throughout the remaining mortgage term.
The one caveat is the way the lender applies extra principal payments received after the due date. As Guttentag explains,
Extra payments that are made later in the month might have the same effect, or might not be credited until the following month, depending on the lender. To be credited within the same month, extra payments have to be received before the Nth day of the month, but N varies from one lender to another.
I don't know with certainty what N is for my lender. I'll admit I don't feel like calling customer service and asking for clarification of the policy. I'm going to learn this one through trial and error by studying the next statement they send us. I'm guessing that they will treat extra principal payments the same way as the regular monthly payments, but that is only a guess at this point. Right now, I plan to make the "April" mortgage payment (normally due May 1) by May 10, including an extra principal payment of $2,000. Waiting the extra time will allow both of us to receive another paycheck from our employers so that we have the cash on hand for the extra principal payment. If the lender ends up just crediting the extra principal for May anyway, then this experiment is over.

So if we didn't have the extra cash on hand to make the additional principal payment in April, and plan to make this up by paying during the grace period in May, then aren't we just setting ourselves up to be one month behind going forward? The answer would be yes if we didn't count on having some extra income in the near future. Thankfully, three sources of additional income are looming on the horizon:
  1. The economic stimulus payment of $1,200 should be arriving in May. While I question the wisdom of increasing the national debt to encourage people to spend money they don't have, I certainly won't be sending this money back to the US Treasury. Note to Congress and the President: My wife and I will not be spending one cent of this "stimulus payment" on anything other than reducing our mortgage balance.
  2. My wife expects to earn some extra income over the summer (June and July) which we aren't budgeting for anything else except paying down the mortgage.
  3. We finally put our second car up for sale. I have no idea how quickly it might sell, or how much we'll end up getting for it, but it's nice to know that we'll have an extra chunk of change coming to us in the near future which we can use to catch back up on our payment schedule. Even if it sells for a trivial amount, we'll be able to drop the insurance for that car once it's gone, and we won't need to pay for registration, inspection, and further maintenance in 2008. This will free up money each month that we can use for extra principal payments.
Our short-term goal is to use the three sources of extra income above to get back on a schedule of paying the mortgage by the due date each month. It's nice to know the 15-day grace period exists in times like this, but I don't want to rely on it each and every month. We're already debt-free aside from our mortgage, so I don't want us to feel like we're struggling financially all the time.

For the first time in a long time I've actually created a spending plan (some might call it a detailed budget) for April-July to ensure that we stay on track and don't miss any important payments. If it ends up being helpful, I may extend it beyond July. It's amazing how debt reduction requires nothing more than sticking to a spending plan involving only grade-school arithmetic (addition, subtraction, multiplication, and division).

By the way, at the end of the amortization article there are links to spreadsheets which Guttentag has created to help calculate the effect of extra principal payments on the overall mortgage balance over time. His fixed-rate mortgage calculator is applicable to our loan. I'm pleased to report that my own self-created spreadsheet agrees with his calculations, but mine takes it a step further. I have two amortization schedules laid out side-by side. The left-hand schedule shows the standard mortgage amortization without any extra payments. The right-hand schedule tracks our actual progress, including all the extra payments we've made to date. I then compare the current numbers to the standard schedule to calculate our interest savings over time, and our progress ahead of schedule. [At some point I still hope to make my spreadsheet available for download, but I need to take some time to make it more generic, and able to handle scenarios other than my own.]

Wednesday, April 16, 2008

Defining Retirement

I read an interesting article recently which illustrates the power of compounding over time. While the math is sound, I don't buy into one of the author's principal assumptions. That's his assumption that retirement begins at the arbitrary age of 67. This is the full retirement age for recipients of US Social Security Retirement benefits who were born after January 1, 1960, but it's still an arbitrary number.

Working until age 67 may be acceptable to some, but not for my wife and me. Our goal is to transition to a retirement lifestyle as soon as possible. Our assault on our mortgage debt is the main component of reaching this goal.

So how do we define a retirement lifestyle? The main asset that retirees have, and which the employed population lacks, is time. Retired individuals can set their own schedule. They can be as active or inactive as they want (depending on their health). They can even go to work if it suits them. But they don't have to work if they choose not to. This control over time is, to me, the key element of retirement.

As I write this, my wife and I don't have full control over our time. Our employers expect us to give our time to them in exchange for our salaries. Most everything we do is based on a schedule that is set by someone else: office hours, school calendars, company holidays, late meetings, mandatory overtime. Furthermore, a significant part of our "free time" is spent preparing for work. We don't have much free time that isn't already committed to sleeping, eating, or caring for ourselves.

And so, we continue to work, exchanging our time for pay. Now that we have a goal (pay off the mortgage in five years or less) and a plan (reduce spending and maximize additional principal payments), we see work in a new light. Instead of exchanging our time solely for money, we're exchanging today's work time for future free time. Every month I work full-time in 2008 represents a month I can work part-time in 2013, perhaps, and another month I can go without working at all, maybe in 2018. This gives more purpose to the daily grind. I'm not working to make my employer happy...I'm working so that I can shift control of my time from my employer to myself.

Fortunately, my wife and I have been good "retirement" savers, and find ourselves in a position to best the hypothetical return of the 26-year-old described in the article, assuming (yes, another assumption) that our investments match the author's proposed 10% average annual return. Unfortunately, that money will remain off limits until one of us is at least 59½ years old, unless we want to pay a penalty (probably not) or the laws governing retirement accounts get changed (plausible, but not likely). So our next challenge will be to find a way to bridge the gap between freedom from mortgage debt and complete freedom from employment. However, we are still a few years away from meeting that new challenge. I think it's best to focus on one goal at a time.

First things first! Death to the Mortgage.

Monday, April 7, 2008

Do It Myself

As we prepare to sell our car, I've been trying to do a better job of keeping our bicycles tuned up and in good operating order. I haven't had a lot of experience with mechanical things, so something as straightforward as bicycle maintenance was a bit of a mystery to me at first. Thankfully, there are a lot of How To guides online. One video in particular came in handy recently, after I got frustrated while inflating one of the bicycle tires. I had difficulty removing the pump nozzle on completion, and managed to tear the valve away from the innertube, instantly flattening the tire.

This is something that the "old me" would have fixed by driving the bike down to the bicycle shop and paying the service department to fix the flat (and while they were at it, maybe do two or three other unnecessary things). But the "new, improved, more focused, and goal-oriented me" decided to limit myself to the purchase of $6 worth of repair parts and learn how to replace the flat tube myself. I'm pleased to report that the experiment was a success, and the bicycle rides great on its new, fully-inflated innertube.

I know this was not a major task, but to me it represents a significant achievement, because I managed to learn something new which I can use again in the future. As we continue to attack our debt, I hope both of us can acquire skills like this, so we can save on the cost of other people's labor. The $6 probably represented a small fraction of the repair cost had I taken it into the shop.

Unfortunately, we had another mishap over the weekend. Someone vandalized our car, which means we now face the choice of either spending $250 to have the auto mechanic replace the broken side mirror, or do without and drive a slightly damaged car for a while. Is this a task we can do on our own? Or does it make more sense to leave this to the professionals? Time for more research.

Saturday, March 29, 2008

Monthly Summary: March 2008

March is almost over. Time to wrap up for the month.

Our March mortgage payment was the 23rd of 180 scheduled payments on the 15-year loan.

At the beginning of the month, our balance was $182,411.84. Our total principal payment of $3,309.41 included a $2,500 extra payment to principal. This reduced the outstanding balance to $179,102.43.

We are now about $7,845 ahead of schedule on the mortgage. If we stopped making any extra principal payments at this point, we would pay off our mortgage 10 months early.

We saved $26.59 in interest this month, for a total interest savings of $44.58 since December 2007.

Since we exceeded the average monthly payment required to meet our five-year goal, the new average principal payment fell slightly to $3,142.15.

April will be a challenging month for us, as I mentioned in the last post. We'll need to keep our focus so that we can stay on track, even if we aren't able to make much progress next month.

Monday, March 24, 2008

Spring Changes

Although much of New Hampshire remains covered in snow, I was happy to see the First Day of Spring appear on the calendar last Thursday. This change of the seasons will be accompanied by several changes in our lives. Some of these changes will help our mortgage saving plan, while others will be obstacles to our goal.

First, our utility bills should decrease as the temperature rises. Although we are fairly miserly with our home heating (we set the thermostat to 62 degrees F while at home and 55 degrees while away or asleep), our average winter gas bill still typically runs about 700 percent higher than our average summer bill. Increased hot water usage in the winter also contributes to our higher gas bill. Our electricity costs rise throughout the winter months, as shorter days mean more hours of electric lighting. There is also an electric component to our heating system which increases our consumption during winter.

Although hotter weather is on the way, we don't typically run our air conditioning at home. New Hampshire does get warm during the summer, but the evenings are usually mild, and any so-called "heat waves" don't tend to linger more than a few days. We try to bring the cool evening air into the house by using window fans at night. Once we get up in the morning, we close the windows to lock in the cool air, and close the blinds or curtains to block the heat on the sunny side of the house. We can seek refuge in the neighborhood pool if the warm weather gets unbearable. The two or three days we actually turned on the air conditioning last summer were a nice treat, but it's quite possible for us to live comfortably at home without relying on it like so many of our neighbors do. Our non-winter electric bills are usually about half the amount of the winter bills. Combined with our decreased demand for natural gas, we should pay $150-$200 less on utilities per month in the near future.

On top of the utility savings, we should see our gasoline consumption decrease in the coming months. I started riding my bicycle to work last summer, and I hope to ride more regularly this year now that I have more experience commuting by human power. My wife can also bike to work on occasion. However, she's managed to get a ride from a co-worker on a daily basis for the past two months, so she may continue to share rides instead of commuting by bicycle full-time.

Since we were married, we've been a two-car household. After tracking the cost associated with owning two vehicles (insurance, registration, and maintenance), I realized we could save a lot of money by selling one of the cars. In addition to the reduced cost of ownership, we'd gain some extra income from the sale of the car. The net savings could amount to over $10,000 in the first year, and around $2,000 per year going forward. Because of this, we've been challenging ourselves to live a one-car lifestyle since February 1, 2008. So far, we've managed to consolidate our trips, or arrange alternate transportation when we've needed to get around. Based on this success, we hope to sell the car by the end of April. All that's left to do now is to clean it up, decide on a selling price, and list it.

Our main obstacle to selling the car is uncertainty. Both of our jobs are tenuous right now. While neither of us expects to be without a job in the near future, the right combination of factors could motivate one (or both) of us to look for alternate employment. Because we don't know exactly where a potential new job might take us, we are hesitant to sell the car until the current uncertainty passes. However, since life is nothing if not uncertain, we're never going to have guaranteed job security. For that reason, we are tempted to just "bite the bullet" and sell the car, trusting that we can adapt to anything the future may hold.

The job uncertainty also threatens our mortgage saving plan. If either of us goes without a paycheck for more than a month, we will have no choice but to go back to paying the minimum required mortgage payment until the situation improves.

April is going to be a particularly difficult month for attacking the mortgage. We must pay our tax bill at mid-month. We're also budgeting for another large personal expense that should come due in April. If anything is left over, we will add it onto the regular mortgage payment, but the most likely scenario I foresee is paying the minimum in April, and using the economic stimulus payment (scheduled to arrive in May) to get back on track. The stimulus payment should cover all but a small portion of our April tax bill. However, the timing of the stimulus payment means that April's mortgage payment should be small, while May's mortgage payment has the potential to be much larger than usual.

Taking stock of all the changes, I see the decreased utility costs and gasoline consumption lasting throughout the spring and summer, not picking up again until at least October. Selling the car will be a one-time event, along with the tax bill. The job uncertainty has the potential to linger for a while, but we have a few months of savings on hand in case we need to make employment changes in the near future.

Following up on last week's post, we've had continued success selling items to help reduce our clutter and increase our income. Getting paid for Spring Cleaning is great!

Monday, March 17, 2008

Selling Stuff

As I wrote in an earlier entry, I have been working on selling the excess stuff that's been cluttering our lives. I had originally started selling on eBay, but discovered half.com after reading about it on Antishay's blog. I'm surprised I didn't stumble on it myself, since it's an eBay site, but I was so focused on their main auction site that I didn't pay any attention to Half. What a pleasant surprise it was, then, when I started listing our stuff on Half -- it immediately started selling.

In less than a week, I've managed to get rid of a bunch of unwanted books, movies, CDs, and video games, netting about $100 so far. I'm amazed that there are so many people out there who want our old stuff. I am pleased that it's all going to others who will get more use from it than we did. I'm also pleased that we get some money from the sales, which we can put toward our expenses.

Of course, we do have some other items that can't be listed on Half because they don't fall into the categories that Half allows. I'll need to go back to eBay or some other site to continue to sell the rest. But after the simplicity of Half, I'm not as excited as the additional work required to create an eBay listing (photographs, descriptions, and so on). Plus, eBay charges a listing fee whether the item sells or not. Half only charges commission on completed sales.

We are slowly building up to sell some higher-priced items in the near future. I'm hoping that the success of the smaller listings (and the accompanying positive feedback) will benefit us when we finally list the more expensive stuff -- stuff that will make a real impact on our bottom line, including the omnipresent mortgage debt.

Monday, March 10, 2008

Purpose

Lately I've been reading a number of other blogs and websites dedicated to personal finance. While many include paying off the mortgage as an important step in achieving Financial Independence, I haven't discovered more than a handful which list "eliminating the mortgage" as the main goal. After reflecting on this for a while, I realized that this blog isn't really just about paying the mortgage either, despite the name I selected. Death to the Mortgage is the means to an end, not the end itself.

So what is that end? What is it that my wife and I hope to achieve by eliminating our last remaining debt? In my mind, we're looking for more flexibility to live our lives according to our own priorities -- not the priorities of our creditors or our employers. Right now, we're stuck with an obligation to pay a large sum to the bank every month for more than a decade. In order to do this, we have to spend the best part of our days away from the house, away from each other, doing tasks that would not ordinarily hold our interest for such a long duration. We're expected to do this without fail, day after day, week after week, year after year, so that we can meet our obligation to the bank. That obligation is far and away our largest monthly expense. Without the steady income from our jobs, we'd have trouble making the mortgage payment for more than a month or two. So in effect we are stuck working at our jobs so that we can pay the mortgage. Although this is an oversimplification, it illustrates the source of my frustration. We've allowed the terms of our mortgage dictate our need to work, and because we have to work, our employers dictate how we spend our time.

None of this makes us special. Untold numbers of others have the same arrangement. It seems to be the path of least resistance for all the homeowners we've ever known. I'm not saying that the bank duped us into taking on a debt that we didn't understand. We knew what we were getting into when we signed for the loan and moved into the house. Now that we've been playing by the rules for a while, though, we realized that we don't want to live this life anymore. We're taking action to take back our freedom.

Some people truly enjoy waking up every day and going to work. This gives them a sense of purpose, of belonging, of accomplishment. I find those people fascinating. I am not one of those people. I would be perfectly happy to fill every day with projects of my choosing. I don't think I'm unusual, either. If we're lucky, each of us has seven to nine decades to spend on this earth. Why should we have to spend six of them (two in school, and other four working and paying taxes) working for the future, only to come out old and tired in the end? I want more than four weeks of vacation every year. I want to have the freedom to stay home on the first gloriously warm day of spring, and not feel like I'm shirking my responsibility to others. I want to be able to take six months out of my life and hike the Appalachian Trail. I want to be able to choose to work or not work on my own terms, rather than remain trapped behind a desk in order to make ends meet. I want to be able to spend the prime of my life focusing my thoughts and energy and desires into stimulating, meaningful pursuits, whether or not they make me rich or create jobs or contribute to the Gross National Product.

I don't feel lazy or selfish for wanting this for my wife and myself; in fact, I feel enlightened knowing that we have a choice in shaping our future. We're choosing to sacrifice now so that we have more flexibility in the future. Others have the same options, but choose a different path. We've told our friends and family about our plan. Some tell us it's a good idea, but "not for them" because of the choices they've made. In the end it comes down to a choice. We can buy now and pay later, or pay now and play later. I'm looking forward to playing.

I feel like Andy Dufresne, chipping away at the cell wall of debt with our little rock hammer of extra principal payments, scattering interest savings out in the prison yard, and preparing for the ultimate break out of the Shawshank mortgage in the not-too-distant future.

So what, then is our Zihuatanejo? I like to imagine us living modestly, choosing our employment (and unemployment) without concern of layoffs or strikes or unnecessary relocations. Maybe we'll find something we love and try to make it into our own business. Maybe we'll keep working to build up our savings to generate investment income. Maybe we'll move into the woods and live like hermits, rarely seen or heard from. Truthfully, we haven't completely figured out what exactly we'll do at that point, only what we will NOT be doing (living as slaves to The Man). We'll have many more options without debt holding us back. I'm confident we'll make the right choice when that time comes.

Monday, March 3, 2008

Our Attitudes about Debt

Time for a little bit more background information about my wife and me. By some amazing stroke of luck, I was fortunate enough to meet a woman who eschews debt as much as I do. At the time of our marriage, neither of us carried any debt, with the exception of the mortgage I had on my previous residence. As I've mentioned before, we are not wealthy, but we have been disciplined enough in our spending that we've been able to avoid purchases which would have required us to borrow from lenders.

When I bought my first home, one of the initial changes I made was to replace the carpeting throughout the interior. I didn't have enough cash on hand to cover the bill, so I signed up for one of those "No Interest for One Year" promotions that the big home improvement stores offer periodically. I made a habit of setting some money aside each month in a savings account, making sure that I wouldn't fall short on the due date (as anything less than a 100% payment of the outstanding balance would trigger back interest on the entire amount). However, I would get irritated each time I received a monthly statement showing the outstanding balance. Finally, I couldn't take it any more and scraped together enough extra cash to get rid of the loan before the year was up. Even that relatively small debt (the total loan amount was, I believe, around $2200) drove me crazy. Since then, I've avoided debt traps like that, instead opting to save up in advance, or (more commonly) foregoing the purchase altogether.

It was a great feeling when we paid off the HELOC (second mortgage) in December 2007. That was an adjustable loan with a higher interest rate than our main mortgage. I realized that it made no sense for us to pay additional principal to the main mortgage until the HELOC was gone, because it was more expensive to pay the interest on the second mortgage each month. I could not imagine trying to juggle additional loans on top of that. I have a great amount of respect for others who are working to eliminate all of their debts (including credit cards, car loans, and student loans) in addition to their mortgages. That must feel like a more daunting task, requiring more discipline and focus than tackling a mortgage alone.

I'm very thankful that my wife and I have been fortunate enough to find ourselves in our present financial situation. I believe a combination of luck, discipline, and a supportive environment of family and friends have enabled us to get this far already.

  • We both come from families who understood the value of money, and taught us the basics of saving, spending, and using debt and credit judiciously.
  • We both have generous parents who started planning early to fund our education, and paid the majority of our education expenses. They also taught us how to be good students, which meant we received some aid in the form of scholarships. Because of these two factors, we had no need to take out student loans.
  • We both purchased reasonably priced automobiles, and independently managed to pay off our auto loans early, before we met each other.
  • We both use credit cards as our primary method of making purchases, but have the discipline to limit spending to a strict budget, and pay the balances in full each month. Neither of us has carried a balance on our credit cards for years.
  • I was fortunate to buy a condo during favorable market conditions during the early 2000s and sell it at a profit when we purchased our current home. This allowed us to make a larger down payment on our house than we would have been able to save up on our own.
  • We have both been fortunate enough to find ourselves in good health, though we are still relatively young. The few issues we have had have been relatively minor, and primarily covered through our employer-sponsored health insurance.
  • I was fortunate to get a job with a financial services company after graduation which taught me good investing and saving habits.
  • We both work and contribute income to the household each month, which allows us to reduce our debt more aggressively than a single income would.
  • We both share the common goal of eliminating all debt from our lives so that we can make future choices without feeling tied to a monthly mortgage payment.
Lately I have been wishing we had started this plan earlier, so that we would be even farther down the path than we are already. But patience is part of the plan, and we are determined to succeed.