Killing the Mortgage Demon

Posted by Canadian Dream on May 26, 2010

Paying off your mortgage is rather unexciting as an investment, but in the long run can be hugely beneficial since having no mortgage is excellent for most retirement plans and often just a good investment depending on interest rates (since you are paying it in after tax dollars).  The only problem with paying it off is it feels like a marathon race to kill off that demon since your payback horizon is typically 25 years or greater.

So how can you speed up the death of your mortgage?  Well here is my handy guide.

1. Get Less Mortgage – The ideal way to start off is to have a smaller mortgage in the first place.  So avoid taking on too much house, when in doubt go cheaper and upgrade as you need.  The ideal case is to keep you mortgage to less than two to three times your household pay.
2. Get a Flexible Mortgage – When you are planning to pay off your mortgage faster than 25 year or 30 years you better to be sure to have some flexible options from your bank to get there.  So beyond shopping for an interest rate also compare lump sum prepayments (when and how much), double up payments, and increasing your regular payment.  I know when I renewed last year the breaking point for me was Scotiabank was offering a 15% lump sum payback during any point of the year, while Royal Bank was only offering a 10% lump sum (Guess who I picked?).  For maximum flexibility you might want to check out ING Direct who offers a stunning 25% lump sum option.
3. Pay a Little More Often or Extra – Check out the difference of either making payments every two weeks instead of twice a month especially if you get paid that way.  You end up with an extra payment a year which helps a lot.  Or consider increasing your payment a little bit to drop your amortization down by five years.  Often the amount isn’t that much and can hugely save you interest.
4. Even a Little Lump Sum is Good – People often grossly underestimate how much a few lump sum payments in your first five years of your mortgage can speed up its death.  In the world of compound interest on a mortgage the idea is to really put anything you can in that first five years and you will see your amortization period drop like a stone.  I know I didn’t put all that much on mind for the first few years, just the odd $1000 when I could spare it.  That was even enough to drop my amortization by four years.
5. Get Over the Hump – Once you get to the point when over half your regular payment is going to principle rather than interest you are on the downward swing of your mortgage.  This is a exciting point to get to since you can really start to see your principle start dropping even without extra payments.  So if you add the odd extra payment you will really see the results.

It can be a long and lonely road to kill off our mortgage demon, but if you keep it up it will start to die.  I know I started working on my first mortgage just over six years ago.  Now we are working on the home stretch and potentially could be mortgage free in as little as two more years.  Even if I took my time we could still easily pay off in less than 10 years in total. Either way, it’s certainly a hell of a lot shorter than that first 25 year amortization I signed up for.

So how long did you take to pay off your mortgage? Or how long do you hope to have it paid off in?

The Retiring Mind Winner

Posted by Canadian Dream on

Sorry for keeping you all in the dark on who won The Retiring Mind give-a-way contest.  I forgot to pull the name during the long weekend.  The winner was comment #9, rls!  You will have an email from me giving you instructions to collect your prize.  Please check your spam folder as these emails can often end up there.

Thanks for everyone who entered!

Tim

It’s a Start

Posted by Dave on May 25, 2010

I would like to change the world for the better someday.  How eventually I’ll do it I’m still not sure.  While I was listening to a lecture online the other day (on taxation, which really isn’t all that pertinent in making the world a better place) the professor implored students to start a change in the world, and to start being example-setters at the grassroots level.  His opinion that resonated with me was that today’s world is entirely too complex, fast-paced and cynical as a result of which people are not stopping to appreciate the little things.  He talked about one method that he uses, that seems very simple, but may have a profound effect on people in your world and has the potential the turn into a pay-it-forward kind of concept.

A thank-you note is his method.  One thank-you note to someone in your world once a week.  Whether it be a co-worker, family member or friend his method is to make an appointment with yourself once a week, sit down and write a note to someone.  For example, he said that easy notes are to thank people who invited you to their home, or on someone’s birthday.  The notes that he says are the hardest to write, but resonate the most with the receiver are the ones he has written to people for no reason at all except to say thank you for being a special person in his world.

I’m not sure how I would react if I got a note from someone in my life telling me that I was a special person and was appreciated.  Rarely (at least that I’m aware of) do people share their feelings in this world, and positive sentiments like this are rarely shared.  I think that it is assumed that these feelings are there, but (as I have been told by my wife) people like to hear them once in a while.

I carried out a version of this method in cards to my groomsmen and ushers last year at my wedding.  I put a lot of thought and sentiment into the cards that I wrote to the guys in my wedding party, as well as my parents.  I thanked each of them for being a part of my wedding and let them know that I was glad they were in my life.  Overall, I think that the cards were very well accepted and it felt good writing them.  Besides my brother and parents, the people I had included in my wedding had been my friends for over half my life.  Guys being guys, we generally didn’t talk about stuff like that, but to put it in the open felt good.

I know I have spent more time writing letters of complaint to anonymous companies explaining why I was dissatisfied with their product than I have spent telling people who are important to me that I am glad they are in my life.  I think that this reaction is similar in most people’s lives – to acknowledge the negative things that happen to you, but not take the time to thank people who have made your world better.

So, this is my start in attempting to make the world better.  It’s not big at all, and may only impact the very few people in my life that I interact with.  I’m going to preface this by saying that I am a total introvert – in a crowd of people I basically disappear, meaning doing something like this is definitely outside of my comfort zone, but I’m willing to give it a try.  Following what this lecturer says though – imagine if everyone did this?  Wouldn’t your world be a little better?

I’m wondering – do any of you do anything like this?  Is this a weird idea?  How would you react to getting a thank-you note like this from a friend or acquaintance?