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

Thursday, January 31, 2008

Monthly Summary: January 2008

Only a few minutes left in January 2008. Time for a quick summary.

Per my homemade amortization table, the mortgage payment we made this month was the 21st of 180 scheduled payments on our 15-year note.

We started the month with a balance of $188,983.82. Our total principal payment of $3,776.55 (consisting of the principal portion of the regular monthly payment as well as our additional principal payment) reduced the balance to $185,207.27 at month end.

We are currently approximately $3,302 ahead of schedule (when compared to the balance had we never made any additional payments to principal). Our $300 additional principal payment in December saved us $1.50 interest in January, which is the total interest saved to date.

In December 2007 I calculated that we would need to pay an average of $3,149.74 per month in principal to meet our goal of eliminating the mortgage in five years (60 months) or less. We exceeded that average in January 2008, so the new required average monthly payment for the next 59 months drops to $3,139.11.

February may bring another lifestyle change for us, assuming we can get our act together. Hopefully will result in more savings next month. I'll elaborate on that at another time.

Tuesday, January 29, 2008

Progress to Date

My wife and I began our financial partnership together in April 2006 by purchasing a house with a $204,000 15-year fixed mortgage at an interest rate of 6.00%. At the time we were in the process of selling my former residence (a two-bedroom condo). We knew we couldn't produce the necessary cash to put twenty percent down on the house until the condo sale was complete, so to bridge the gap we opened a home equity line of credit (HELOC).

My plan all along was to completely pay off the HELOC as soon as we received the proceeds from the condo sale. However, this didn't happen for two main reasons. First, we spent more than expected on some renovations shortly after purchasing the house (including window replacement and plumbing repairs). And second, the condo didn't sell for quite what we were hoping, since home prices were starting to come down as the housing market cooled off in 2006. Therefore, following the condo sale, over $13,000 remained on the HELOC after we'd paid down as much of the balance as we comfortably could. Between June 2006 and November 2007 we made regular principal payments on the HELOC, occasionally sending additional amounts when we had extra room in the budget. In December 2007 I received a bonus which made it possible for us to pay the remaining balance and close the HELOC for good. Looking back, I think we could have paid off the HELOC even more aggressively, but we weren't as committed to getting rid of debt in 2006 and early 2007 as we have become in recent months.

In December 2007 we started having serious discussions about paying down not just the HELOC, but the entire mortgage as soon as possible. We started brainstorming about how to cut costs each month so that we could make larger payments to the principal balance. We came up with a number of ideas, some of which we haven't implemented yet. Some of the changes we could make right away, though.

First, we set a stricter budget for ourselves. Although we had always been in the practice of not carrying balances on our credit cards from month to month, we weren't exactly careful about how we used them. I pulled out our credit card statements for the prior year and logged our spending habits during that time. From that analysis we identified a few areas where we could cut back, and set limits in a number of categories. Starting in January we've been trying to live within the new budget. As the month is drawing to a close I am pleased to report that (aside from the not-so-unexpected cost of the dishwasher replacement) we've been staying within the new limits.

Second, we made a decision to cut back on our retirement saving a bit. I can hear financial advisors groaning at the sound of this, but we didn't make that decision lightly. Between the two of us, we have combined 401k and Roth IRA assets of about $200,000. We were contributing more to the 401k (fourteen percent) than the employer would match (seven percent), and had maxed our our Roth IRA contributions every year. At age 31 and 27, we felt that we had a decent start to a retirement nest egg and could afford to reduce the 401k contribution to the point where we'd receive 100% employer match (seven percent of salary). Cutting back on the 401k netted an extra $350 each month. We're still making the maximum $5,000 contribution to each of our Roth IRAs in 2008.

Between the $350 freed from the 401k, the extra cash left over by cutting discretionary spending, and the end of our HELOC payments (which had been running at around $350 per month), I figure we should have at least $1,000 available to contribute as extra principal even in the leanest of times. I am optimistic that once we implement several other of the planned changes in 2008, we can increase that minimum amount to $1,500 per month. And because we have not budgeted for non-salaried income, there will be months where this figure will be significantly higher. My wife occasionally works a second job, and I get bonuses from work once or twice a year. Tax refunds, gifts, and any other unexpected income will get channeled into extra principal payments. I hope we can make the most of 2008, early in our five-year plan, because interest saved from reduced principal will have a chance to compound over the remainder of the loan period.

By now we've already sent the mortgage payment for January 2008 (technically due 2/1/08). I'm pleased to report that we sent an additional $3,000 principal payment on top of our regular monthly payment. The total contribution to principal this month was $3,776.55. In December we had sent $300 additional principal with our monthly payment. Prior to December we had not made any additional payments to principal.

As the calendar turns to February, our outstanding balance is $185,207.27. Looking at the amortization table that I've made for myself, we would not have reduced the principal balance to that amount until May 2008 without sending in additional principal payments. So we're already four months ahead of schedule. It's a small step, but I hope it's followed by many more small steps in the coming months.

Monday, January 28, 2008

Exposition

The dishwasher finally broke yesterday. It's been slowly dying ever since we bought our house in 2006. We've been dealing with its shortcomings for the past year or so, living in denial of its impending demise, but tragedy finally struck last night when I tried to run a load after dinner. So today we went down to Sears and ordered a new model, which should be delivered and installed by this time next weekend.

Although the bill for the new dishwasher isn't going to break the bank, its purchase will limit the amount of extra cash we have available to apply toward principal as part of next month's mortgage payment. After embarking on our quest in January with a very healthy $3,000 additional contribution to principal, we've already suffered a setback in only the second month. This had me disappointed for a while today, because I had been expecting to continue January's momentum into February with the anticipated tax refund. However, I've accepted the situation at this point, and if anything, I'm more determined than ever to see this plan through to the end.

Since I didn't start at the beginning, I'll briefly summarize events leading to this moment. My wife and I bought our house in 2006. Although we had some money left over from the sale of my condo, it wasn't quite enough to put down the standard twenty percent, so our lender set us up with an 80/20 mortgage (eighty percent on a fifteen-year note fixed at 6.00%, and the remainder on a home equity line of credit [HELOC] at a fraction of a percent above the Prime Rate). Our goal for the first year and a half was to eliminate the HELOC, since it had a higher interest rate. We accomplished that goal in December 2007, leading to a short but intense celebratory moment. At point, we re-focused and, like Sauron's fiery gaze from Mordor, turned our attention to the HELOC's larger (and much uglier) cousin: the Big Bad Mortgage.

A couple of challenges earlier in 2007 made us realize that we wanted to completely eliminate debt from our lives, so we could make employment decisions without feeling chained to our monthly payments. An initial analysis of our monthly expenses revealed that after savings, about half of our income was earmarked for housing payments. Our ultimate goal is to find ourselves in one of several happy scenarios, each accomplished by eliminating the need for a monthly mortgage payment. We could become a single-income household. We could both pursue more meaningful jobs which would most likely not pay as much as our current jobs. We could scale back to part-time employment, granting ourselves more leisure time together. Or we could continue to aggressively save after the mortgage is paid off, funneling the extra income into savings that would allow us to retire early.

I hope to look back on these entries some day with the satisfaction of achieving our goal. All I aim to do here is provide a record of our progress toward a debt-free life together. Wish us luck.