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, 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!

13 comments:

Laura@move to portugal said...

What a GREAT goal and how brilliant if you can do it! Good luck, what an inspiration you both are :)

Middle Way said...

2011 is shaping up to be a banner year with pre-set plans and multiple back up plans.

All of which are pointing to success.

Will you also be planning a celebratory event too?

Anonymous said...

It would be wise to keep a few years running costs in savings. No such thing as job security anymore.

Remember, if you cant pay your bills your house can still get taken away even if it is mortgage free.

The Executioner said...

Anonymous, what bills are you talking about? Are you saying someone would take my house if we didn't pay the cell phone bill? Nonsense. They would just cancel the phone service and send my bill to a collection agency.

Once the mortgage is gone, fixed costs should be reduced to a minimum. We have no other debt to speak of. All non-essential services could easily be canceled and spending could be cut to a minimum. We'd eat beans and tap water. We'd start selling assets, including the house if necessary.

I do think it is wise to keep some savings on hand at all times, so we won't completely wipe out our savings to pay off the mortgage. Having several YEARS of savings sounds more like a retirement strategy than an emergency fund. That's probably what we'll work toward building once the mortgage is gone.

Anonymous said...

I just meant that dont put every penny into paying off mortgage, I didnt say have several years of savings. And yes, debtors go after assets to satisfy unpaid bills/debts. There are expenses that you cannot do without such as utilities, property taxes, food etc. But as you say you keep expenses to a minimum.

Anonymous said...

"Debtors go after assets to satisfy unpaid debts/bills"

I meant creditors.

The Executioner said...

Property taxes, utilities, and food expenses are going to be the same whether we have a mortgage or not. Seems to me that these bills would be more manageable from a cash flow point of view if we didn't also have to make a monthly mortgage payment.

If we were in such dire straits that creditors were after us and the only untapped asset left was our home, then I'll be glad we can sell it and get out of that hole. But that sounds like a worst-case scenario to me. And worst-case scenarios are pretty difficult to plan for. Emergency funds can only do so much. My hope is that we've learned enough about personal finance during our marriage that we'll stay far away from that worst-case scenario financially. After all, that would imply that we'd have to take on a bunch of debt that we simply don't have at the moment.

Louise said...

oh wow, you really are doing a great job! it's exciting watching you get closer and closer to paying it off!

jane said...

I happened upon your blog today and found the whole concept so exciting that I just spent the whole afternoon reading through your archives (this is an indication of how cool your blog is, not my "lack of a life" status). I'm so glad I did. I really admire your writing style and posting format which make it easy to follow your progression. Not too much personal fluff either which is refreshing, this format just works for you.

About the "death to the mortgage" goal, man, more power to you and wife, excellent going so far. I'm an eager saver myself looking for the right opportunity to get my foot in real estate. Meanwhile, I'm diligently increasing my savings. I initially wanted to save a healthy down payment but in 5 years, I've saved about half the amount I need to fully fund the cost of a house. My challenge now is whether to proceed with a traditional down payment and mortgage, or continue saving and pay for the whole thing cash. Whatever I decide, your discipline is now an additional inspiration to my saving ethic. I certainly wish you and your summer income earning, super wife much success this year. Look forward with great anticipation to reading all about this years successes.

The Executioner said...

Laura, Louise: Thanks for the encouraging words.

Middle way: I'm sure we will celebrate in one form or another, but no plans as of yet.

Jane: Are you currently renting? There should be some break-even point where the amount you'd pay in mortgage interest would be equal to or less than the amount you'd pay in rent over a certain number of years before you pay your mortgage off. You can probably find a way to calculate this online, or make something up. Plus, if you buy a home, you get to live in it while you pay it off.

If we could do it all over, I'd want us to save for a higher down payment, and choose a smaller house. But our current house is home now, and soon it will be debt-free.

Anonymous said...

No, I live in my parental home. I'm actually born and bred outside the US on a a small Caribbean island called St.Vincent which you may or may not have heard of.

Comparatively, cost of living is more expensive in my part of the world so to help out ones family as well as increase your own personal savings, most people here live at home until they get married or save enough to comfortably build/buy their own home. My goal was to make that as short a period as possible hence my healthy saving ethic.

I've been fortunate enough to receive full university scholarships so I have no debt. My natural aversion to debt is compelling me to stick it out some more and save the full sum needed for my own place but my independent spirit is ready to fly the coop. That's why I find your mortgage challenge to be so interesting, you have the freedom of your own home, but you also present yourself with an exciting challenge to get rid of that debt as quickly a possible. A mortgage challenge like this is something I would much rather take on than live the high consumerism lifestyle of most of my friends. But to each his own.

jane said...

No, I live in my parental home. I'm actually born and bred outside the US on a a small Caribbean island called St.Vincent which you may or may not have heard of.

Comparatively, cost of living is more expensive in my part of the world so to help out ones family as well as increase your own personal savings, most people here live at home until they get married or save enough to comfortably build/buy their own home. My goal was to make that as short a period as possible hence my healthy saving ethic.

I've been fortunate enough to receive full university scholarships so I have no debt. My natural aversion to debt is compelling me to stick it out some more and save the full sum needed for my own place but my independent spirit is ready to fly the coop. That's why I find your mortgage challenge to be so interesting, you have the freedom of your own home, but you also present yourself with an exciting challenge to get rid of that debt as quickly a possible. A mortgage challenge like this is something I would much rather take on than live the high consumerism lifestyle of most of my friends. But to each his own.

Sofia Britts said...

I know that you want your mortgage off of your chest ASAP, but dedicating your savings to paying it sounds like a bad plan. Unforeseen expenses might come along the way, so don't touch your fall back money as much as possible. You would want to feel that you're still financially secure after you've paid the last remaining cent off of your mortgage.