Today I have a guest post from a fellow blogger named Andy Hill. Andy is a mid-30’s father of two living in the metro Detroit area, who runs the blog MarriageKidsandMoney.com (MKM) and hosts the MKM Podcast which takes listeners through the trials and tribulations of being a young parent and husband who is planning for his family’s future and winning with money.
Getting a mortgage is a big financial responsibility and I love the goal Andy and his wife set to pay off their 15-year mortgage quickly. Here’s his story.
During late 2013 while I was traveling out of town for work, my wife Nicole found our “forever house”.
This home had everything she was looking for including an attached garage, open floor plan, updated kitchen, walk-in closet and a big backyard on a half-acre lot.
She told me that this was THE ONE and as soon as I got home from out of town, I had to see it.
My wife has excellent taste and the majority of the time we are in sync. I wasn’t worried about liking it. I was worried about getting a BIG OLE MORTGAGE to pay for it!
Moving from our small bungalow (my bachelor pad she begrudgingly moved into when we got married) to a ranch twice the size of our current house was going to be a big upgrade for us.
When I got a chance to look at the house she found, I realized loved it too. It felt like home instantaneously. Even the neighbors were perfect.
We decided to go for it. BUT …
I had a few nerdy money guy rules that we discussed to ensure this mortgage was obliterated in less than 5 years:
A 15-Year Mortgage
In our first house together, I had made a lot of uneducated first-time-home buyer mistakes that I didn’t want to repeat.
One of those areas I was bound to improve was with the mortgage process.
My first mortgage was a lovely thing called a 5-year ARM (Adjustable Rate Mortgage). “ARM” sounds a lot cooler than “Adjustable Rate Mortgage” – smart marketing department at Chase Bank!
In the beginning, I didn’t quite comprehend the whole “adjustable” part of the name. In 2009, when my 5 years ran out, the metro Detroit housing market was in the dumps and the rate adjusted, I quickly understood.
This time would be different.
When we bought our new house in 2013, the rates were at an all-time low. We got a $200,000 15-year mortgage at a 3% interest rate with no points.
This 15-year mortgage has higher monthly payments of $1,900, but the bulk of it is going to the principal every month instead of our mortgage company’s pockets.
Nicole and I agreed that if we couldn’t afford to pay the larger monthly payments of a 15-year mortgage, then we shouldn’t buy the house.
Three years into this home purchase, the 15-year mortgage was one of the best decisions we’ve made so far.
Not only were we paying less interest to the mortgage company by going with the 15-year mortgage over the 30-year mortgage, but the mortgage principal had been going down by a sizable amount each month.
Additional Principal Payments
My second nerdy money rule to crush our new mortgage in 5 years was to make additional monthly payments of $500 toward the principal each month.
This required us to dial back our expenses slightly – things like less eating out for dinners, more packing my lunch for work and we cut the cord on cable TV (and we still don’t miss it today).
This consistent monthly payment made a major impact in the dramatic reduction of our mortgage. Yes, we had a 15-year mortgage, but I wanted to turn it into a 5-year mortgage.
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Extra Money
My company pays us 26 times per year (every two weeks) as opposed to 24 times per year (1st of the month, 15th of the month). Nicole and I agreed when we bought the house, we would only live off of 24 paychecks annually instead of the 26 we actually received.
So twice a year, we have made a BIG payment on the principal with those two additional paychecks. This consistent biannual payment took a huge bite out of the overall principal balance.
I don’t always receive bonuses for work. It depends on how my company is performing or how I perform that year. Last year, I was fortunate enough to receive one for a solid performance.
That unexpected money was also sent to attack the mortgage.
Monthly Budget Party
Nicole and I agree to meet every month to create and review a monthly budget. I have dubbed this the “budget party”. She does not find it to be much of a “party” per se, but I figured if I call it a party she might be more willing to show up.
The monthly PARTY consists of pizza and us developing a zero-based budget through Mint.com where every dollar that we earn each month is committed.
This way, we were controlling our money instead of money controlling us.
Since paying off the mortgage is a big deal to both of us, we ensured that the extra principal payments were included in this budget each month. Since the additional principal payments are automated, it became our way of life.
It is kind of like when you set up automated retirement contributions. You don’t even allow yourself to realize you have access to that money.
Having Fun
My wife is a good yin to my yang. She likes dreaming for the future with me and having a little less today so we can have more tomorrow. She also wants to make sure we’re enjoying our lives today.
With the madness that sometimes comes with my full-time job and two kids under four years old, we both agreed that if we were going to do this crazy 5-year mortgage pay off extravaganza that we still need to have fun.
Everyone defines fun differently. For us, it meant things like going to dinner with friends, having themed-birthday parties for our kids, driving to northern Michigan to visit our family for the weekend, going to Detroit Lions games (more torture than fun really) and doing spur of the moment trips like going to Manhattan for a quick weekend.
The last thing we want is to be house rich and life poor. I can accurately say we’re having fun and excited about the future. Nicole would agree.
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Dream Big Dreams
In order to keep us motivated and excited about paying off the mortgage, we constantly remind ourselves why we’re doing this.
With a paid off mortgage, we will be able to go on an epic family vacation every year. We’re thinking Mexico for a week during Christmas or Easter. The warm, beautiful sun will shine on our pale native Michigan skin while we lie on floating rafts in a picturesque infinity pool. I can see it now!
With a paid off mortgage, we’ll fund our kid’s college funds so they will have the freedom to attend college and not worry about student loans.
With a paid off mortgage, we’ll be able to save for our first rental property and begin generating some true passive income. As the passive income builds over time, we will be able to retire early.
These dreams keep us motivated and excited about the day the mortgage is gone for good.
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We’re three years in we’ve paid over $130,000 of the principal using the steps mentioned above.
We’re on track to pay our mortgage off by December 2017 … and that will truly be a life-changing Christmas present.
To learn more about Andy, feel free to check out his blog and connect with him on Facebook and Twitter.
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We plan to pay off our 30-year $145,000 mortgage in just 7 -9 years. We were offered a better rate for a 30-year instead of a 15-year, so that’s what we opted for (the payments were also lower, which was crucial for paying off other debts first).
This was only possible by slashing our expenses (switching phone plans, moving to a cheap part of town, getting rid of a car, cooking at home), paying off $14,000 of credit card debt, and continuing to live frugally. We have weekly budget summits so we can adjust our spending as needed. Right now we’re paying off our $60,000 student loans over the next year, but after that it’s the mortgage that’s gotta go!
It’s a great feeling. 🙂
Nice work!! That is awesome that you made those changes in your life – reducing the expenses and the STUFF to maximize your joy.
Best of luck with those student loans. With your passion, I’m sure they will be gone in no time at all!
I just bought my first house in November last year so being mortgage free is quite far ahead of me yet. Right now, I’m just getting adjusted to living on a budget while simultaneously supporting a house. I also still have $17k of student loans that I’ll be focus-firing off first with extra funds.
Here in Canada, the norm is a 25 year amortization – my mortgage is $390k at 2.29% fixed rate over 5 years. Oh and btw houses here a tad more expensive for some reason. 😛 (and yes the thought of relocating to the US has crossed my mind many times lol! But living near my family here is more important to me right now.)
At this point, my plan for early retirement is to get rid of all debts (minus the mortgage) while growing my investments in other vehicles too. I don’t think it would be wise for me to plant $450k of my wealth in the house alone. It would be great if I could pay off this house in 15 years though! I guess what I’m saying is that sometimes having a paid off mortgage doesn’t always work for everyone.
I applaud you for this lofty goal Andy! If I were in your situation, I would be doing the same thing 😀 Congrats ahead of time for being mortgage-free by the end of the year!!
@Jaymee, thank you so much for the thoughtful comment! Yes, I completely agree that paying off your mortgage is not for everyone. You need to do what is best for you, in your specific situation.
I think you’re doing the right thing focusing on getting on a budget and clobbering those student loans. Smart move! Congratulations on the new house!! It is so fun to have a place to call your own.
Congrats again on your new house Jaymee! I’ve also noticed that housing prices are higher in Canada. Where I live houses are pretty cheap and we’ve been looking actually. We’re sure we can find something with plenty of space for around $150k – $175k.
Ahh don’t get me started Chonce! I watch a lot of House Hunters at work and I am in awe of how much house one can get for $200k in some parts of the US. We’d be lucky to find a 2 bedroom condo here for that price lol!
Are you planning on buying a house soon?
Haha yeah I watch that show a lot too! We’re thinking about it. If not this year, then next year for sure. I just really want to pay off the rest of my student loans this year so as long as getting a house doesn’t affect that then we’re definitely considering it.