Tag Archives: mortgage

Mortgage Free at 34

You know those days, when everything goes right.  You wake up just before your alarm, your coffee is perfect, your drive to work is easy and the day is productive and challenging.  Well take the feeling, multiply by 100 and add a good deal of excitement and satisfaction: today I’m mortgage free and I really do OWN my house. Oh, by the way, I’m only 34.

I had originally wanted to do this by Oct 31, but that didn’t happen.  You know the phrase: a day late and a $1 short? That is exactly what happened.  I went to pay my last lump sum payment over the weekend and I ran into a problem.  My lump sum payment privilege for the year had $1978 left, meanwhile my mortgage balance was $1979.  Yes I was exactly a $1 short.  So rather than trigger penalties I sucked it up and waited for my regular payment on Nov 1, 2012 to kick in and pay off that last dollar.

So how on earth do you become mortgage free this young?  Simple, you really hate having a mortgage payment.  While that is the easy answer, but in fact the basis of how we did it in just over 6 years.

We initially bought our home in Regina for $190,000 with a $40,000 down payment, so we took out a mortgage for the remaining $150,000 back in July of 2006. The key here was we bought a reasonable amount of house for us.  I could afford a lot more, but I didn’t want to be tied down to house payments for it. Then for the first few years I didn’t do much at all to pay it back.  Really, I was likely just like most people on I made my payments and I believe I did manage at least one extra lump sum payment of $1000.

Then we started to having a long conversation with my wife on where we wanted to go in life and I realize being mortgage free would add a lot of flexibility to our lives.  I could down shift to part time work if the mortgage was gone, my wife could change careers or we continue to save and leave work early.  Regardless of the exact scenario,  the idea of never having a mortgage payment again was highly appealing to us.  Besides, with such low interest rates right now it is easy to pay off debt and I won’t be punished for saving cash in crappy low interest paying saving accounts or bonds.

So I scaled back on all other discretionary savings and poured everything we could at the mortgage for the next three years.  Oh boy did that every work, for a change of pace I was actually looking up my limits of lump sum payments on the mortgage because for two years in a row I maxed those out (15% of the original mortgage balance).  We also took advantage of the option to increase our regular payments by 15% a year, so ever time I got a raise I poured that money back into paying off the mortgage even faster.

The end result of this change to our lives won’t be know in full for a few months.  After all when you pay off the mortgage you still go to work the next day.  In the meanwhile, our monthly spending just fell off a cliff since our largest bill (after tax) will now be our monthly spending cash at $400 a month.  On the other side my regular mortgage payment of $1940/month is now available for saving.

To celebrate we have having a party this weekend with family and friends.  In addition, both my wife and I bought ourselves little gifts.  My wife bought 2013 Grey Cup tickets and I bought a Nexus 7 tablet.  Now I just have to start saving up for my wife’s cork floors in the kitchen…after all when your promise is put on national TV there is a bit of pressure to do it.

Any questions?

Net Worth – Feb 2011

While I wasn’t expecting anything interesting for this update I did hit a minor milestone.  See below.

Assets

House $340,000
RRSP $27,700
LIRA $11,500
TFSA $10,600
Pension $33,500
Wife’s RRSP $20,200
Wife’s Investment Account $12,700
Wife’s TFSA $8,600
My Investment Account $6,500
High Interest Savings Account $6,900

Debt
Mortgage $76,600
HELOC $0

Net Worth $401,600 (+$18,200 or +4.7%) [+ 4.7% YTD ]
Investment Net Worth $138,200 (+$11,300 or +8.9%) [+ 8.9% YTD]
Mortgage is down by $6,900 or 17.7% of my goal for 2011.

If I haven’t mentioned this recently let me repeat something:  saving for early retirement is a really bloody boring exercise a lot of the time.  Sorry to disappoint you if you have other ideas on the situation, but the reality is it is mostly about keeping up a savings routine.  Yet today I hit one of little milestones that makes the journey a little more interesting as we finally broke the $400,000 net worth mark.

So that made me curious on when we past the $300,000 mark?  Well according to my records that occurred in Dec 2009 ($304, 500), so from then to now was a mere 14 months.  Pardon?!?!  Does that work out to almost $7000/month?  How is that even possible?

The answer is simple: the minor miracle of compound interest and a savings plan.  That $100,000 gain is broken down into the following:

  • Paying off mortgage $44,600
  • Investment net worth up $39,500
  • House value up $13,000

The mortgage is the classic case in point.  As I continue to put on additional lump sump payments that drives my interest costs down and allows more of my regular payments to go to principle.  Although each payment doesn’t change the situation that much, the compounding effect starts to build up until now over 80% of my regular payment is now going to the principle.  So even if I stopped making lump some payments the mortgage would still be paid off in under five years.  It’s now snowballing all by itself and I’m just giving it an extra push down the hill.

Any questions?

My Goal is Early Retirement But I’m Not Saving for It….

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any.  Dave is from Ontario and is working towards his CGA certification.

My goal is early retirement but I’m not saving for it.  Last week sarahhiggs asked a question – whether I was saving for retirement or utilizing a Tax Free Savings Account or Registered Retirement Savings Plan.  The short answer is no – my spouse and I have decided our primary goal right now is paying off my mortgage.  Paying off the mortgage is our primary financial goal for the following reasons:

1) I don’t like debt

Regardless of your view on whether a mortgage is good debt or bad debt, I think the bottom line is that there is an agreement between the buyer and the financial institution to pay something back.  My preference with this debt, as well as all of my debts, is to zero it out as quickly as possible.  I don’t like owing anyone, including a faceless bank, money and never really have.  Our mortgage will probably be the last major debt that we will ever have (or plan to have) – paying it off is freeing.

Ideally we would have saved the approximately $200,000 to buy our house, but we were kind of anxious to “own” a house.  We felt that the $20,000 in interest we would have to spend over 6 years (most of it in the first few) was worth it.

2)    Financial Freedom is more important to us than savings right now

After our house is paid off our fixed monthly bills will be approximately half what they currently are.  After this point we will have some decisions to make.  Right now we plan to work full-time until we have enough passive income to cover our living expenses.  With our bills significantly lower we will be able to put significant dollars towards our savings goals and hopefully achieve our financial goal of retirement at 45.

3)    The “return” on our mortgage is risk free

Looking at Tim and Robert’s returns over the past year or so I may have been better investing my money than paying off my mortgage.   Paying off my mortgage is (to me) a sure thing investment wise.  My fixed 3.59% is not great compared to what I could have achieved in the market last year, but coupled with my other two reasons it is a rate I am willing to accept in order to achieve my end goal.

My wife and I keep our finances separate.  Right now over 75% of each of my paycheques is going towards paying down the mortgage.  My wife’s money is used for our other savings, which will soon be used in purchasing a car, but is also our trip money, house renovation money and other larger “stuff” that we generally buy together.

We are currently 1/3 of the way done paying off our mortgage, with 4 years remaining.  I’m looking forward to paying this off in the near future, but along the way we’re trying to have some fun.  If we put every penny we made towards our mortgage we could probably shave off a year or so in payments, but we have decided on a more moderate plan of attack right now.

\How about you? Do you have a singular financial goal, or are you spreading your money around to many goals?