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

Monday, August 15, 2011

It's Official

Today, almost four months after we sent our final payment to our lender, we received a Release of Mortgage in the mail. It includes a cover letter from the lender, along with a very official-looking Release document, with a notary stamp and a sticker from the county Register of Deeds.

I'm glad to have it. I was just wondering this weekend when/if we'd ever receive anything more than an initial form letter from our lender stating that our loan had been paid in full.

The cover letter that accompanied the Release document includes a statement from the lender, encouraging us to "consider [them] for future mortgage needs."

I hope we have no mortgage needs anytime soon.

Friday, July 1, 2011

Who I'm Working For

(Or should this entry's title be more correctly phrased as "For whom I'm working"?)

I became a first-time homeowner (aka mortgage holder) almost ten years ago. From that time until May 2011, not a month passed when I was not obligated to send a mortgage payment to a lender. Although the monthly amounts were never financially crippling, they were also never trivial. Therefore, it was crucial that I maintained a steady income to support my housing.

Over the past decade, there have been several cycles in the economy and job market during which the prospect of maintaining steady employment seemed pretty bleak. When rumors of layoffs would circulate through the office, the collective level of fear would rise among the employees. When jobs were eventually cut, and colleagues let go, I remember feeling a mixed set of emotions: relief that my job remained, concern for friends and co-workers who had been terminated, disdain for the extra work that the remaining employees would have to pick up, and an uneasy feeling that another round of cuts would follow in the not-too-distant future.

Now that the mortgage is dead, work has become less emotional. Although my wife and I still have financial obligations to meet (including taxes, insurance, and consumption spending), none of these is as regular nor as substantial as the monthly mortgage payment used to be. Therefore, I have the feeling now that I am working more because I choose to do so (in order to improve my own financial situation), instead of working because the mortgage lender compels me to do so.

This doesn't mean I've suddenly started slacking off at work, acting like the protagonist of Office Space after his epiphany. However, mentally I feel more like work is something I choose to do -- because it matches my future goals -- instead of a task that has been chosen for me. So, to follow up with the title of this entry, I'm not working for the mortgage company. I'm working for me.

Webster defines "Freedom" as "
the absence of necessity, coercion, or constraint in choice or action". By paying off the mortgage I have given myself some additional freedom: to work, or not work, or work less or more. My wife benefits from this as well. It's a great reward for the completion of the project!

Sunday, June 19, 2011

Refocusing

We had a good system in place. We spent time up front to create a plan to kill our mortgage. After a few months, it started running on autopilot. We didn't have to give it much additional thought. And ultimately the debt withered and died. Our mortgage-killing plan can be stated in its most basic form thusly:

Step 1. Minimize expenses.
Step 2. Allocate all extra cash to mortgage prepayments.
Step 3. Repeat as needed until mortgage is dead.

Now that we've paid off our mortgage, there's a gap in the plan where step 2 used to be. What do we do with our extra cash flow each month?

I have to admit, after we saw the words "PAID IN FULL" appear on our online mortgage account, my wife and I slacked on step 1 during the month of May. I think we both needed a month to celebrate our accomplishment and not think too much about spending. But now that we're into our second month of mortgage-free living, I fear we will lose our commitment to minimizing our unnecessary spending if we don't refocus our efforts on new priorities.

Something else must fill the void left behind by debt reduction.

We need a new plan. But it won't just happen on its own. We have to make a conscious decision how to allocate our money going forward.

Here are a few of the things we'd like to do with our future "non-mortgage" payments:

Save and invest for current income (pre-retirement)
This is a long-term goal. I envision this as a debt-reduction snowball, only in reverse. An investment snowball? I am thinking of the classic personal finance book Your Money or Your Life when I ponder this goal. This will have to wait until we replenish our short-term "emergency" savings. I'm feeling the same impatience toward this saving/investing goal as I was toward the mortgage elimination goal. I have to remind myself that this goal is a marathon, not a sprint.

Make some improvements to our home
Now that we own 100% of our house, wouldn't it be nice to start to tackle some of the projects we deferred while we were paying off the mortgage debt? Potential projects on our list range from smaller cosmetic enhancements (paint and baseboards) to more elaborate undertakings like refinishing the basement or remodeling a bathroom.

Be more generous (gift-giving and charitable donations)
We cut back on charitable donations while we were paying down our debt. We'd like to get back into a habit of giving. And although we were not stingy with gift-giving during the project, we would now like to take advantage of our improved financial situation to give nicer gifts when appropriate.

Allow for more discretionary spending ("wants")
This category is a potential budget-killer. There are whole host of items and experiences that we're tempted to purchase now that our debt is gone. The key here is moderation: spreading these expenses out over time, and deciding which purchases will give us the most enjoyment/satisfaction/utility.

We can't accomplish all of the above at once. So far, we've been saving some of our extra cash, although we did give some gifts to our parents this spring, and the discretionary spending has been higher than usual. We need to sit down and create a budget (with actual dollar amounts or percentages) so we can keep track of these competing goals. I'm confident with a little work, we will put ourselves in a position to reap the rewards of our efforts in the future.

Monday, May 23, 2011

That Time of the Month

This is the time of the month (the beginning of the 4th week) by which I've always made the mortgage payment in the past. Only May 2011 is different. There's an empty spot in the checking account ledger where a big withdrawal used to hang out.

(Warning: this entry may read as if I'm bragging...but I'm really just feeling the satisfaction of our new financial situation. Finally reaping the benefits of our hard work, perhaps.)

We're actually feeling a double benefit from having the mortgage paid off. Not only are we avoiding the "mandatory" monthly payment -- we're also avoiding the extra principal payment which we had become accustomed to saving during the DTM project. The extra principal amount varied, but looking back at our payments, we averaged over $2,800 in extra payments each month (excluding the large payoff amount at the end of the project).

What this means is that the extra cash in our new monthly budget is somewhere north of $4,000.

Our savings could definitely use some replenishment. We drained a large portion during the final two months of the project to deliver the final two death blows to the mortgage debt. But using the very rough $4,000 figure above, we could have our savings account balance back above the pre-payoff balance by the end of this calendar year.

But why stop there? Why not take advantage of our learned frugality and continue to benefit our overall financial situation? At the start of the project, I said that one of the things I wanted us to gain from a mortgage-free lifestyle was increased freedom from obligations, so that we could live on a single salary (or two part-time salaries) if we so choose. So starting next month, we are living on one salary. No, neither of us is going to quit (or change) jobs, but we will be directing 100% of the post-tax portion of one of our salaries into our savings. Since we both make a similar take-home pay, it doesn't really matter which of our salaries covers expenses and which goes into savings -- it's a communal pot of money anyway. It will be automatic. We won't even think about spending what we don't have in our checking account.

With this plan in place, we'll have the "emergency fund" portion of our savings fully restored by the end of the summer. After that, we can start making decisions about what to do with the surplus. I'd love to start doing some more dedicated investing for our future -- allowing our assets to start contributing to our income, resulting in our money working for us.

In addition to saving and investing, there are some other things that we gave up at the end of 2007 which we will likely start to re-integrate into our planned spending. I'll elaborate on those in a future entry.

Saturday, April 30, 2011

Monthly Summary: April 2011(Paid in Full)

This may be a bit anticlimactic considering my previous entry, but for completeness I'll summarize our April mortgage activity using the format I've become accustomed to for more than three years now.

Our April mortgage payment was the 26th of 120 scheduled payments on our ten-year loan. It was the 40th payment since we began our DTM project at the start of 2008. And it was also the last mortgage payment we'll ever make on this house, as the loan is now paid in full.

We began the month with an outstanding balance of $19,107.10. After careful consideration, we decided to transfer enough money from our savings to pay off the remaining balance. Because we paid off the balance before the last day of April, the interest was charged at a daily rate (24 days). Along with the remaining balance, we paid our lender $58.91 interest and a $17 recording fee. Our bank charged us a $25 wire fee for the privilege of sending certified funds to the lender. So the total cost of dealing the mortgage its fatal blow in April was $19,208.01.

Until now I've been listing the amount of interest we save each month by comparing our actual interest payment to the amount of interest we would have owed the lender if we hadn't made prior payments to principal. I call this the "realized" amount of interest. Since the loan is gone, we not only realized the interest savings for the month of April, but also for all future months until the loan would have been paid on the standard amortization schedule (March 2019). Because we would have owed the lender $37,133.57 of interest over the full life of the ten-year mortgage, and because we only paid the lender $9,735.76, we have now realized $27,397.81 in interest savings on the ten-year loan by killing it this month. (This doesn't include interest savings from our original 15-year mortgage which we refinanced in early 2009 -- by including that amount, the total is $28,435.55).

If we had never made any extra payments on our ten-year loan, the remaining balance at the end of April would have been over $121,461.

We reached our original five-year goal last month. We reached our revised four-year goal this month. From start to finish, it took us three years and four months (40 months total) to pay off the mortgage once we made up our minds to do it as quickly as we could manage.

Strangely enough, our achievement doesn't yet seem real. I think it will take at least another month (when we start seeing more unallocated cash in our budget) before we start reaping the benefits, both financially and psychologically.

Although the mortgage is finally dead, I plan to keep this blog up and running for a while. I would like to reflect a bit on our experience over the past few years, and describe our new mortgage-free (and 100% debt-free) existence. At some point in the not-too-distant future I will probably decide that I've had my final word, and can close the book on this project. But then, of course, a new project will begin.

I'd like to dedicate this month's entry to my loving wife, who provided us the courage to set bold goals, the tenacity to help keep ourselves on target, and the hard work (and paychecks) to back it all up. Congrats, girl! You deserve it.

Tuesday, April 26, 2011

Goal Complete

Sunday, April 24, 2011

Decision Reached

This will probably not surprise anyone who knows us (or who has been following my blog), but my wife and I ultimately decided that we were comfortable with the choice to pay off the mortgage this month. We weighed the risks against the rewards and are mentally ready to aggressively move forward. Tomorrow I will head down to the bank to send a wire to my lender for the remaining balance and interest, with a little extra thrown in to cover recording fees and the cost of the wire itself.

Our lender has an automated telephone number which provides information about the loan (balances, history, etc). One of the options provides mortgage payoff details. However, the lender only offers two choices after selecting the "Loan Payoff" branch of the phone menu: "Press 1 if you are selling your home. Press 2 if you are refinancing your loan." Well, of course we are doing neither. I guess not too many people elect to pay off their mortgages in the way we've chosen.

The lender is also very clear that they will only accept final payoff in the format of certified funds (bank wire or cashier's check). I doubt they would make an exception in our case, even though they were happy to cash our personal check last month for an amount which is larger than our remaining mortgage balance. At this point I'm not interested in pleading or arguing with customer service anyway. I'll just follow their standard procedures in an attempt to minimize the chances that something gets fouled up in the process.

For the sake of disclosure, here are some of the reasons we made the decision to go ahead with the loan payoff now, instead of waiting a few more months so we wouldn't have to dip so far into savings. This list is in roughly descending order of importance.

  • We are mentally ready to be done with this debt
  • We have budgeted for major expenses through the end of 2011, and paying off the mortgage now would not negatively affect our ability to meet expected future obligations
  • We do not feel our employment situation is at risk for the near future (at least through 2011)
  • We have already transferred cash out of our savings account and are comfortable with the balance
  • We expect to rapidly replenish our savings after the mortgage payments are history
  • We have dealt with a lot of maintenance issues (repair and/or replacement of appliances, etc) over the past five years, so the risk that something will break or need repair in the near future is relatively low (knock on wood)
  • By paying off the mortgage now, we will avoid paying some additional future interest
I'll provide an update over the next day or two when the transaction is complete.

Saturday, April 9, 2011

Mortgages and Emergency Funds

A widely accepted personal finance "best practice" is the establishment and maintenance of an emergency fund which can be used to cover unexpected expenses, such as appliance failure, car replacement, home repair, or income/job loss. Depending on the source, typical recommendations for emergency fund goals range between six and twenty-four months of living expenses.

As our outstanding mortgage balance is now less than the amount we have saved in our emergency fund, it occurred to me that there is a direct relationship between the two. After a mortgage is gone, monthly expenses will suddenly drop. Therefore, when basing an emergency fund goal relative to future monthly expenses, it's possible to find a point at which it is beneficial to use the emergency fund to pay off the mortgage using the amount of savings which is earmarked for future mortgage payments.

Here's a hypothetical example using nice round numbers. Imagine I have a mortgage with a required monthly payment of $1,000. I also have a goal to have one full year (twelve months) of living expenses covered by an emergency fund. Regardless of my other monthly obligations, if my emergency savings are fully funded, $12,000 of the total saved amount should be allocated to future mortgage payments (twelve months of $1,000 payments). Now assume I have paid enough of my mortgage debt that the outstanding balance is $12,000. It probably makes more sense for me to take the $12,000 out of emergency savings and use that to pay off the rest of the mortgage. If I don't, then I'll end up paying the $12,000 eventually (month by month), but because a portion of my monthly mortgage payment goes toward interest, it will take me more than twelve months to pay off the remaining debt. This means I will end up paying more than a year of extra interest, and my total mortgage expenses (including interest) will exceed $12,000.

Of course, by withdrawing the $12,000 from the emergency fund, I'll miss out on the opportunity to earn interest on my savings. But since an emergency fund will typically be invested in fully liquid cash or money markets (not tied up in CDs or other investments which may need to be sold at a loss on short notice), I'll likely be earning a very low rate on my savings. If the savings rate is less than the mortgage interest rate (also likely), it will provide me a greater financial benefit to get rid of the mortgage right away.

If my required monthly mortgage payment also includes an escrow amount (intended to cover property-related expenses like taxes or interest), it will make it even more favorable for me to pay off the mortgage right away, because less of the monthly mortgage payment will be allocated to principal. So in the example above, it might take me fifteen months to pay off a mortgage with a $1,000 required monthly payment (principal + interest + escrow) if the remaining balance is $12,000. This means I would be on the hook for fifteen months of interest. As for the escrow portion, it's probably a wash -- once the mortgage is paid, my lender will return any accumulated escrow balance to me (the former borrower), which I can drop into my emergency savings, likely earning a higher rate than the pittance which is usually paid on escrow accounts. Of course it will be my responsibility to pay my own taxes and insurance after the mortgage is gone, but if I've been responsible enough to pay off my mortgage, it's probably safe to assume I'll be responsible enough to pay my own taxes and insurance as well.

Since the emergency fund is meant to cover lost income as well as unexpected expenses, I might expose myself to more risk if a sudden major expense were to crop up after I'd used my emergency savings to pay off the mortgage. It's this consideration -- trying to predict the unpredictable -- which keeps my wife and I from immediately using our savings to pay off the rest of our mortgage right away. It is tempting, however. Once the mortgage is gone, we'll be able to replenish our emergency savings in short order. There is a window of time where such a move would leave us vulnerable, though. We're still working on this decision. I'll likely elaborate on this again when we've run some numbers and come to an agreement on how to move forward.

Thursday, March 31, 2011

Monthly Summary: March 2011 (Five-Year Goal complete)

My wife and I made a larger dent in our mortgage balance in March than we have in any prior month, by far. There were two reasons for this. The first, as I discussed earlier, was because I received a bonus in March which we chose to allocate entirely to our mortgage debt. The second reason is that we elected to withdraw a portion from our savings to reduce the mortgage balance even further. Our savings had reached the point where it was more than adequate to serve as an emergency fund, and rather than have extra cash earning next to nothing in a savings account, we made the decision to use the money for debt reduction, saving ourselves future interest payments.

In total, we added $28,000 additional principal to our March mortgage payment. It's very satisfying to see the debt drop from the $40K range down into the $10K range (skipping past the 30s and 20s in one fell swoop). By doing this we effectively achieved our original goal that we set at the beginning of this project: even if we don't add anything additional to principal going forward, the mortgage will be paid off within the five-year goal period (no later than April 2012) simply through our regular monthly payments. It feels great to have that locked in, regardless of what happens in the future.

The March payment was the 25th of 120 scheduled payments on the ten-year mortgage, and the 39th overall since this project began in January 2008.

At the beginning of the month the balance was $48,643.11. Adding the extra $28,000 to the required payment amount reduced the debt to $19,107.10 at the end of the month.

We realized $289.59 in interest savings this month, bringing our total realized interest savings to date to $4,463.07.

The mortgage balance is currently $103,425 less than it would be if we'd never made any extra payments to principal. If we stopped allocating extra money to the debt, we'd still pay off the loan six years and ten months early.

As mentioned, we've effectively reached our original five-year goal (even though the mortgage isn't gone yet). We have nine months left to pay off the mortgage within our revised four-year goal; we'd have to average combined principal payments of $2,123.01 to meet this goal.

We have reached perhaps the most important milestone yet in this project. My wife and I now have enough cash in our accounts to eliminate the mortgage completely. We need to have a discussion about our comfort level with reduced cash on hand, because paying off the mortgage now would mean that our savings would be substantially depleted. Without future mortgage payments, we should be able to rebuild the savings relatively quickly, but if something was to happen in the near future, it might put us in a bind. I'll elaborate on this pending decision in a future entry.

I feel like we have reached the threshold of the end of the journey now. It's just a matter of deciding when to pull the trigger and put the mortgage out of its misery.

Saturday, March 12, 2011

Bonus

I've worked for my employer for more than a decade. My stated salary includes a yearly bonus which is rather predictable -- it does not vary much from one year to the next, and can be considered part of standard compensation (that is, if the company remains profitable, the bonus will be paid).

However, my employer also offers a true bonus, which is a more rare event. It is a challenge to earn (it requires a stellar performance review score), and it is not immediately paid (it has a vesting period of two years, on top of an announcement and payout schedule which means just over two years and three months pass between the time the bonus announcement is made and the final payout occurs).

I unexpectedly earned this true bonus in late 2008, around the time that the DTM project was a year old. I completed the vesting period at the end of 2010. Yesterday, at long last, the bonus was paid to me.

I consider this a windfall for our mortgage payoff. It was something I never counted on during the initial planning phases. The timing of the payment almost assures us that we will reach our original five-year goal, and makes it extremely likely that we'll be able to meet our revised goal of paying off the mortgage in the 2011 calendar year.

The company mood between the end of 2008 and the end of 2010 (my bonus vesting period) was cautious and stressful. Rumors of layoffs turned into actual layoffs, some grand in scope and some more focused. Just after one wave was complete, another rumor would crop up, followed by more cuts. It made it impossible to relax, and job security became a myth. Morale plummeted. Had I been targeted during any of those "reductions", my deferred bonus would have been lost.

Fortunately for me, my group was less affected by job losses than other areas -- we were aligned with a part of the business which remained profitable even during the lean times. I will readily admit that good luck played a role in my continued employment -- I knew many extremely intelligent and capable people who were let go because the company mandated more aggressive cuts in their lines of business. Sometimes, it's better to be lucky than good.

Meanwhile, my wife moved into a higher-paying job in the second half of last year. She's been very pleased with the move and considers this to be much closer to her "dream job" than her prior position.

Given the wider employment situation across the country, it almost feels tactless to share the news of personal success when set against a backdrop of others struggling to make ends meet. I know several people who lost their jobs in the past few years who have not been able to find suitable replacement work -- they face bleak prospects with low-paying options or very short-duration job stints interspersed with periods without an income. I try not to take our current situation for granted. Who's to say that my wife and I will both be employed at this time next year? I think it's prudent to pay off the mortgage while we have the means to do so. Once that monthly obligation is gone, our cash flow would improve significantly: given our current lifestyle, we could easily make ends meet indefinitely, even if only one of us was earning an income.

I find myself trying to envision our lives after the mortgage is gone. I'm encouraged to work towards a lifestyle which is much less dependent on earning a full-time salary. Developing multiple income streams would help offset the risk of a sudden job loss. I'm sure that will be our next project.

Monday, February 28, 2011

Monthly Summary: February 2011

The snowy winter continues in New England. We did get a bit of a break last week, when I rode three days to work on my bicycle (and I found out that I'm not in my best cycling shape). But today we awoke to freezing drizzle, and the road surfaces are very slick.

My wife and I are leaving tomorrow for our annual trip to a mountaintop cabin accessible only by foot travel (snowshoe). Snow is welcomed up there. But once we return, I'll be looking forward to signs of spring.

In February we made the 24th of 120 scheduled payments on our ten-year mortgage, which was the 38th payment since we began the DTM project.

We started the month with a balance of $52,802.39. We added $3,000 extra principal to our regular payment, which reduced the outstanding loan amount to $48,643.11 at the end of February.

We realized $276.85 in interest savings this month. We've saved over $4,173.48 of interest since we started making prepayments on our mortgages.

Our mortgage balance is $75,136 lower than it would be if we had never made any prior extra payments. If we had to stop making prepayments at this point, we'd still pay off the ten-year mortgage five years and two months ahead of schedule.

Twenty-two months remain in our original five-year goal period. Ten months are left in our revised goal of eliminating the debt by the end of 2011. We must average $2,202.87 in monthly principal payments to meet our original goal, and $4,846.31 monthly to meet our revised 2011 goal.

March should hopefully be a good month for several reasons: the return to daylight saving time, the official start of spring, and a bit of extra income for us. I'm looking forward to all of it.

Monday, January 31, 2011

Monthly Summary: January 2011

Compared to a year ago, this January has been very snowy in New England. I have hardly been able to ride my bicycle at all, because the snow piles on the side of the roads are intruding into the bicycle lanes, forcing me to ride in the same area as cars. As much as I enjoy riding (even in the winter), I've had to put the cycling on hold for my own safety (more because I fear drivers won't be able to avoid hitting me on the narrow, icy roads than for any other reason).

We made good progress on mortgage killing this month. My wife's new job (as of last October) comes with a higher salary, so we've had more cash to allocate to the debt (I'm definitely not complaining about this).

Our January payment was the 23rd of 120 scheduled payments on our ten-year loan, and the 37th payment since we began the project a little over three years ago.

We began 2011 with a balance of $58,121.17. We scraped together $4,000 to include with our required monthly payment, which in total reduced the debt to $52,802.39 by the end of January.

We realized $260.53 in interest savings this month, bringing our running total to $3,896.52 since the beginning of the project.

Our mortgage balance is now $71,859 less than it would be if we had never made any prepayments on the loan. Because of our prepayments to date, we're guaranteed to pay off the mortgage 5 years early (on a ten-year note) even if we never make another extra payment from this point forward. That's right...we cut the term in half in under two years.

We have 23 months left in our five-year goal period (but only eleven months considering our revised goal to rid ourselves of this mortgage in calendar year 2011). We must average $2,295.76 per month in principal reduction to pay off the loan within our original goal, or $4,800.22 per month to meet our revised 2011 goal.

These next few months are going to try my patience. Now that I can see the light at the end of the tunnel, I'm tempted to take all of our free cash and dump it on the loan to get rid of it once and for all. But for now, at least, we are sticking to our plan. Hopefully we'll be able to meet our updated goal and be done with mortgage payments by the end of this year.

Thursday, January 20, 2011

Pay Down the Mortgage Early, or Invest?

A popular Personal Finance topic of debate concerns the wisdom of using extra cash to either pay down a mortgage early, or to invest. By now, it should be clear which side of the fence we fall on: DEATH TO THE MORTGAGE!

This article makes the opposite argument. I completely disagree with the author's point of view, but I was amused by the numerous comments offered up by readers. Some are logical, some are emotional, and some are truly novel.

The reasons we choose to pay off our mortgage early (redux):

  • Paying off a fixed-rate mortgage offers a risk-free, guaranteed rate of return. When comparing this to other risk-free investments (government bonds, CDs, and the like), the mortgage debt reduction almost always offers a higher rate of return. Investment classes which have posted higher historical returns (stocks, corporate bonds, high-yield bonds, etc) carry a significantly higher degree of risk, including the risk of losing the entire investment.
  • Eliminating mortgage debt has an immediate, lasting effect on monthly cash flow. Sticking with a mortgage through 15 or 30 years requires a steady income during the same time period. By paying off a mortgage early, there is less dependency on sustained employment to meet this monthly obligation (the modern version of indentured servitude). Once cash flow improves, the ability to invest (and even to contribute to old-fashioned savings) gets an added boost.
  • Our house is not an ATM, nor is it a chip to be gambled away. A house is a place to live -- a home, a shelter, a place of refuge and strength and solidute. If someone had given us our house as a gift (mortgage-free), we would not have taken out a home equity loan and used the proceeds to invest. If we wouldn't put our home at risk in that scenario, why would we make the same decision when we're paying down a mortgage?
  • Nobody can know the future. Nobody can predict the future behavior of the stock market or the bond market. Very few people can predict the future of their employment situations. Investing involves risk. Debt elimination adds certainty to a very uncertain world.

Sunday, January 9, 2011

Goal for 2011

As I've stated many times before, my wife and I set a goal in December 2007 to pay off our mortgage in five years. Three years into the project, we're ahead of schedule. Because of this, we've decided to set an aggressive goal for 2011: kill the mortgage by the end of this year.

Even though we managed to exceed our yearly goal ($37,796.76) in each of the past three years, the outstanding balance ($58,121.17) is larger than the total principal reduction in any prior calendar year. So how will we manage to meet this lofty goal? We have a few things going for us.

  • 1. The interest portion of our required monthly payment continues to drop with each month. This means more principal reduction without any extra effort. Running several hypothetical scenarios for 2011, I see we'll have somewhere in the neighborhood of $2,000 to $3,000 additional principal reduction from this trend, compared to interest we paid in 2010. However, smaller interest payments alone won't be enough to help us eliminate the mortgage debt in 2011, so I'm glad that...
  • 2. We should have a smaller income tax bill due in April. Since we owed so much in each of the past two years, we made estimated tax payments for 2011 during 2010. I don't know yet how much of a difference this will make, but I'm guessing it will be at least $2,000, and possibly as much as two or three times that amount. This will help us weaken the debt, but not eliminate it, so it helps that...
  • 3. I expect to receive some deferred compensation in the next few months. Several years ago, when the economy was better than it is now, I was awarded a bonus which required me to (a) remain with my employer for specified period, and (b) maintain a certain level of performance in order to collect. I met the eligibility as of December 31, 2010, so I'm expecting a boost in one of our mortgage payments this spring. Exactly how much this will amount to remains to be seen, so I can't yet predict the impact it will have on our overall progress. However, we have an ace in the hole, which is...
  • 4. Even as we've worked hard to pay down the mortgage debt, we've been adding to our savings. This is cash we set aside for emergencies and property tax payments. We've had to draw on it a few times over the past three years (for example, when our furnace died, or when our water heater broke), but we've always built it back up, and at our current rate of saving (and barring any major unexpected expenses -- knock on wood), the amount of our emergency cash on hand should eclipse the outstanding mortgage balance at some point during 2011. We'll have to come to a joint decision on when the time is right for a significant reduction in our emergency savings, but I expect that this project's nail in the coffin will come in the form of a transfer from savings over to the mortgage, wiping it out in one swell foop.

Paying off the debt in 2011 is definitely a best-case scenario, since so many obstacles could prevent us from achieving this goal, but it's best to aim high, right? I'm looking forward to focusing our efforts and ending this project on a high note. It's exciting to think that by reaching this goal, we'll send our final mortgage payment sometime in the next twelve months!