If you have a mortgage loan, then you’re like the vast majority of people. I’ve made it no secret that I hate mortgages – both having them AND paying them off.
But once they are gone, the potential to build some serious net worth skyrockets. Today, I bring you a guest post by Rob from Mustard Seed Money on the ups and downs of wiping his mortgage clean. Take it away!
I was always a different kid when it came to money. Most of my friends would spend all their money on baseball cards, music, or food. Meanwhile, I abhorred spending money.
It probably had to do with the fact that I didn’t receive a steady allowance growing up.
At times, my parents would start one, and then quickly it would go by the wayside. I’m not sure if it was because they expected me to complete my chores just as a member of the family, or if there were other factors involved, but I never knew when I would see another dollar come my way.
As a semi-resourceful kid, the only way that I knew I could make a good chunk of money was in the wintertime when it snowed. I lived in a really large neighborhood, so there were many prospective customers.
This was before people gravitated towards snow blowers, so my friends and I would shovel
driveways all winter long and divide the profits.
I remember, one winter weekend when I made $320. Though I was utterly exhausted, I felt as rich as any millionaire at that moment. I may or may not have spread all that money onto my bed and laid in it just to see what it felt like. But even as a self-made hundredaire, I don’t remember wanting to spend any of that money.
I guess I’ve always been a saver.
Here are eight critical steps I took to pay off the mortgage loan in less than 10 years
Mortgages are serious business, and they are often the biggest loans that we’ll have. Too many Americans fall victim to foreclosure, and it doesn’t take a lot before the foreclosure process begins to happen.
“Legally, it takes at least 120 days before the foreclosure process begins,” writes Jeremy Biberdorf from Modest Money. It’s not immediate, but it’s soon enough to present a huge problem. Your mortgage needs to be one of your top priorities.
Here’s how I paid off my mortgage.
Fast forward a few years, and I was excelling in baseball. When senior year rolled around, a couple of schools from out of state offered baseball scholarships to me. In discussing it with my parents, they said I could attend any school that I wanted, but they threw out another small caveat.
I would be responsible to pay the difference between the in-state school and the out-of-state tuition if I decided to go somewhere out of state.
It came to a head when I received an offer to play baseball at an Ivy League college. Even with the scholarship, I would have still had to pay almost $20,000 out of pocket every year. This meant I would have had to take out some massive student loans.
Racking up $80,000 in debt was just too much for me to grapple. I decided to attend the state school where I lived, which unfortunately ended up baseball career since they didn’t offer me to play there. But, I do believe it was a wise financial decision.
In order to defray some of the college costs and to graduate sooner, I attended community college during summer breaks. My thought process was, I could work in the summer and make some money, or graduate a year early and make way more money.
To say I was a bit of a math and investment nerd is an understatement. While I had a great time in college, I was focused on the future, namely, securing a job and owning my own home.
Fresh Out of College
I obtained a great job right out of school, so obviously, the next step for 22-year-old me was to buy a house. Hopefully, you’re picking up on my sarcasm.
But this is what I thought was the next step in the game of life. It took a while, but I finally found my dream house located a couple of minutes from work. Best of all, it was a brand new construction, so I could pick out all the designs myself.
In Over My Head
Here’s the thing about the house– it was way beyond what I could actually afford. Sure I put down 20% for the house, but I also had a $400,000 mortgage loan. Yes, I got the mortgage before banks were actually checking documents. But even so, who lends a 22-year-old kid $400,000, a year out of college?
I justified that I would be able to grow into the house with a family down the road and that my earning potential would also grow. But in the meantime, that meant getting roommates. Lots of them. I was fortunate that I was able to have a couple of friends in the area and a work colleague who lived in my home and paid rent.
Roommate Horror Stories
Their rent payments helped to put a significant dent in my mortgage loan. Anytime a roommate would move out, I would scramble to find a replacement. One time, a roommate situation did not work out so well. I had picked up a work colleague who seemed nice and normal enough.
Unfortunately, he and another roommate did not get along at all. They were like oil and water. A fight even broke out, and I was afraid that they would damage the house between the mixture of alcohol and 250 lb men wrestling each other.
After that, we had a sit-down, and one of those guys decided it was time to move on. Hallelujah. However, the next roommate that came along was unfortunately no better.
After he moved in, he decided to quit his job because he no longer liked his boss. He thought that he could find another job, but he was wrong. Soon enough, he could no longer afford the rent. I thought I’d be nice and let him stay in order to help him out a little. So here I was, spotting him each month, while he tried to get back on his feet, which in turn really hurt my finances.
Meanwhile, I was still contributing any extra money I had towards my mortgage loan because I hated it. I hated that I was required to live with guys that couldn’t get along, and I felt stuck in a job where I was losing motivation.
The final kicker for me was when this jobless roommate finally got a new job, he decided to buy a new car instead of pay me the back rent. Needless to say, I was angry.
He moved out shortly after that, but not before I got paid in full.
Making Some Changes
So while some may think buying a house and picking up a couple of roommates is super easy, I can attest that even with the most vetted roommates, that things can and will go wrong.
After that, I decided to cut down on the roommates.
The drama and issues associated with it started to wear on me. Plus, my salary had basically doubled since the time that I had bought the house and was making tremendous progress in paying down the mortgage. I ended up having a friend as one roommate for another year until I got married in 2012.
Mortgage loan Pay-Off vs. Stock Market
Some may think I would have been able to achieve FIRE sooner if I hadn’t paid off my mortgage so soon. I actually ran the analysis and found that if I had invested the money into the S&P 500 instead of paying off the mortgage, that the difference would have been 0.1%. The 2000s were obviously a lost decade for the stock market, so I was fortunate that paying off my mortgage didn’t hurt me more from an investment standpoint.
My last roommate moved out in September of 2012 when my wife and I got married. The final mortgage payment was made in December of 2012, and we were officially debt-free.
Would I Do It Again?
Absolutely, and let me share why. Over the 7 years that I had roommates, they paid close to 1/3 of my mortgage loan off. Through that help, I was able to pay off my mortgage in 7.5 years and start my marriage off debt-free.
Initially, my wife was unsure of my bachelor pad, but she was able to transform it in no time. I said goodbye to my old, torn up couches and dinged up coffee table. We hauled a big truckload of items to the local dump. The best part was we had extra money that she could use to buy new furniture since we didn’t have a mortgage payment anymore.
Freedom and Flexibility without the mortgage
Because we were able to pay off our mortgage early, my wife’s income wasn’t essential in order to pay our bills. She is able to serve as caregiver to her special needs sister full-time as we have greater financial freedom without a mortgage loan.
While my peers were having fun, I spent most of my 20s working hard and trying to get ahead. It was a grind. But I believe hard work pays off. I would take every hard assignment thinking that it would get me ahead no matter what. I figured if all my money was going towards a mortgage, why not work harder to get ahead?
But, while I was working harder, I was not working smarter. I was taking terrible assignments that made me miserable. I had no time to take vacations, and I felt worn out all the time.
When I finally paid off the mortgage, the first thing that I did was go to Europe with my wife. I had always dreamed of visiting Norway, where my great grandparents were born and immigrated from. It was definitely one of the most memorable trips that I had ever taken, and I thought, why didn’t I do this before now?
When I got back, I purposed to seek out jobs that aligned with my passions and to focus less on climbing the ladder. I was able to find some really interesting projects, which also allowed me to indulge in my new passion of traveling.
Do you know what the crazy part was? I have had 2 promotions since returning from that trip. Being able to follow my passions has increased my productivity and value at work to the point where I am now managing multiple teams within my organization.
With a mortgage, I was always preoccupied with needing to make more money. I wonder how different my career path would have turned out if I still had a daunting mortgage to worry about. I know I was on the road to burnout but was trying to push through it all for the sake of money.
On Our Way To FIRE
On our current trajectory, it appears that my wife and I will be able to achieve FIRE by 2020. We are planning out the potential adventures that we will have once FIRE becomes a reality. Of course, paying off my mortgage may have been a risky decision in hindsight if the market had taken off.
Nonetheless, I am thrilled with the end results of paying off my mortgage.
So, what do you all think? Are you trying to pay down your mortgage, or are there other debts you are tackling first? Please share your thoughts below.
Steve is a 38-year-old early retiree who writes about the intersection of happiness and financial independence. Steve is a regular contributor to MarketWatch, CNBC, and The Ladders. He lives full-time in his 30′ Airstream Classic and travels the country with his wife Courtney and two rescued dogs.