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, 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.