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Trying to Pay My Mortgage Off Within 5 Years

February 17th, 2008 at 11:37 pm

Paying off your mortgage is not always a wise financial move. For example, if your investments are currently earning more than what you are paying in mortgage interest, you would be better suited putting your money in said investment's since paying off your mortgage is really doing nothing more than giving the mortgage holder a boost in cash.

That said, I have maxed out my two major investments, my Roth IRA (still qualify since I am under 166K in income) and my companies SIMPLE IRA. My rental property is currently paid via tenants and my cash reserves total about 75K (held in a Money Market Account).

I have an interest in establishing a Stock Portfolio but have yet to find a broker that I feel comfortable with (will take any suggestions).

Thus, I have begun a crusade in paying off my mortgage. To date, I have been able to put about 35K against it, leaving me with a balance of about 117K. The interst rate is 5.5% and I have 12.5 years left on the 15 year term.

Putting large chuncks of money against it occurs about two or three times per year. This is not soothing the payoff best within me. I have begun a mortgage payoff piggy bank. Nickles, dimes and dollar bills will count. I opened a "Mortgage Payoff Money Market Account" whereby all I can scrounge and save will be deposited.

I will keep you updated as to how its going and I wish you all the very best in financial stability. God Bless.

14 Responses to “Trying to Pay My Mortgage Off Within 5 Years”

  1. Diane Says:

    Many people will tell you that mortgage prepayment is not the "smart" thing to do. However, I picked that route too. Like you, my emergency cash and tax-favored investments were fully funded. Also, I live in a state with no income tax, and so the tax advantages of my mortgage interest were very small. So my after-tax guaranteed investment return from mortgage prepayment was pretty decent.

    My mortgage has been paid off now for 4 years. Once the mortgage is paid, it's amazing how much saving you can do. Plus, you've gotten in the habit of committing chunks of cash to a cause. Your cause just becomes the investment accounts instead of the mortgage.

    As for your stock portfolio, check out Scott Burns' columns on the Couch Potato Portfolio. You can get decent returns with a 1/3 allocation to US stock index, 1/3 international stock index, and 1/3 bonds (I use inflation-protected). He suggests Vanguard funds, but you could also use ETF (exchange-traded funds)indexes.

  2. Holly Says:

    I too am considering an agressive attempt to pay off my mortgage early. I have a plan this year to pay off my school loans ($6,400 remain); a stupid credit card I have ($4,000). I have also increased my contributions to my Simple IRA. I am not maxed out yet. I recently received a 10% pay increase and took on a weekend job which brings in a good extra amount each month, and I get a year end profit share bonus of relatively good size in comparison to my salary.

    My thoughts are to pay off the debts (stated above) a.s.a.p. with all extra money and then leaving me at the end of the year with just the mortgage debt.

    With this I am looking for thoughts/advice regarding my year end bonus. It should be a good chunk. It will come a long with my pay check (taxed). I would like to put that too my mortgage. With my other debts gone, I would like to put the extra money towards my mortgage. If I max out my retirement contributions, and can still afford to pay double my mortgage each month, is this smart?
    If I haven't maxed out my retirement contributions this year, is there a way to use the bonus towards that pre-tax, or is it smart to go ahead and use the bonus towards the mortgage and when all other debt (excluding mortgage) is paid off, put all that extra into the retirement?
    I want to have zero debt. That is my major goal right now. But, I want to be smart and prepare for retirement too. I am 30 years old.

  3. Nancy Says:

    I don't care what people say -- a paid off mortgage is a beautiful thing. Paying off your mortgage is a much better return than saving in an account or investing in a mutual fund, I think, because those instruments can vary wildly and quickly; I paid off my mortgage early and saved thousands of dollars in interest. But the main reason I paid it off is because it gave me security and peace of mind.

  4. Mooshocker Says:

    The suggestions and comments are great!!!! Thank you all so much. They truly inspire me. Keep them coming.

    One more thing Holly, I would suggest maxing out your SIMPLE IRA first (since I would assume you are earning the max 3% of your gross salary as an employer match), then focus your efforts on paying off the CC, student loan and any other debt you may have. Bust your hump on that weekend job and sink every nickle into the debt. This way, when your end of year bonus comes in, you can slam your mortgage with it.

  5. scfr Says:

    We're like you ... After building up a comfy cash cushion and maxing out our tax-deferred savings we attacked the mortgage. We have never regretted our decision, not for one second! You will find naysayers when it comes to paying off the mortgage early, but I'm not one of them!

    Good luck and looking forward to reading the updates!

  6. luxlivingfrugalis Says:

    I have that debt-mortification beast within me as well. I hate owing money and am working on paying off our 15 year mortgage early too! Peace of mind means a lot to me.

  7. Ima saver Says:

    I have been mortgage free since i was 32 years old. Each new house we build, has been built with cash. It is a great feeling!

  8. Mooshocker Says:

    Thank you all so much. The reason for the "piggy bank" approach is to help my 11, 7 and 5 year old daughters understand and appreicate what Mommy and I are trying to do.

    Just another way to share the stable financial lifestyle we are trying to live with our kids.

  9. Nancy Says:

    I look at it this way: if something catastrophic happens to me, all bets are off and who knows what will happen. BUT if something mid-level catastrophic occurs, such as a year or two of illness, my home is paid off and I have my day to day expenses covered in my bank account and any long term disability payments I might receive. I am a simple person and dumping 120K in a mutual fund while paying off a mortgage over 20 years hurts my brain.

  10. Holly Says:

    So ... Fantastic news. I believe my pay off goals may have been given a jump start. Apparently I WAY over paid in taxes this year. The refund I am to receive is more than my credit card debt! So, I have that taken care of for sure and can spend the extra a month I budgeted to pay that off aggressively towards my school loans!

    I also figured out how much I needed to invest each month to max out my retirement contributions, and am now trying to see if I can live within that. I really think I can, but don't want to leave myself short-changed each month.

    Thanks for chatting on this subject here. It's encouraging to know that someone read what I put into writing, thus making me feel like I can't let people down. It would be very easy to use the tax return for new carpet or washer & dryer. This is helping me stick to my plan! Thank you. I'm so excited.

  11. luxlivingfrugalis Says:

    Holly, can you adjust your withholdings so you get more in each check and loan Uncle Sammie less each month???

  12. frugalistas.blogspot.com Says:

    We're trying to pay off our mortgage, though it's not tax deductible, in Canada.

    Good luck!

  13. susan Says:

    Well I am considering paying off my mortgage in 5 years, why you ask, well because after being laid off from time to time and being in the position where I am worried how I am going to pay my mortgage, and in fact very close to losing the house on more than one occassion, I have decided I no longer want to be in that position EVER AGAIN! I have no investments and no savings, but I find I do want the security of owning my home outright, I do have an investment townhouse that is rented out so that pays for its self thank god!

    My question is, how can you figure out the best way to pay off your house in 5-7 years, i hear about paying every 2 weeks etc, but how can you find out what is the best way? are there any good websites to help, who are not trying to sell you something? any suggestions?? Oh once my house is paid then i will soley concentrate on investing for retirement, I know I know its bad and I am turning 40 this year, but I will put all my income into retirement once the house is paid.

  14. mooshocker Says:

    Susan,

    First, I would not suggest focusing on paying off your mortgage prior to securing at least six months of savings to cover your costs of living. Your mortgage is considered "good debt" and the interest paid may very well be deductible. Not having an emergency fund may cause you to borrower, causing "bad debt". Furthermore, I would assume that the interest paid toward your mortgage is lower than any other debt you may have that bears interest.

    Not having an emergency fund is a scary proposition for anyone. When you prepay your mortgage, yes, you reduce the term of the loan, the amount owed and the amount of interest paid. However, you are giving the mortgage holder a loan to lend to someone else and earn interest. Before you loan any money to them, loan it to yourself (pay yourself first) and establish that emergency fund!

    Now, that said, what should come next after an emergency fund; mortgage pre-payment or retirement? My thought has always been you cannot borrow for retirement, however, your house will always have costs associated with it, be they principal, interest, taxes or insurance. All that said, I believe you can pre-pay your mortgage AND contribute to a retirement fund at the same time. Consider this:

    If you have $100.00 remaining every month after all of your debts are paid toward, apply $50.00 toward the principal of your mortgage (via a separate check and notating "toward principal only") and $50.00 toward a Roth IRA (not knowing your situation, a ROTH IRA is just an example. It may not be the best for you).

    At this point, review what you have: an emergency fund of six months should you lose your employment; a retirement fund that is working for you and taking advantage of compound interest AND the reduction of the principal on your mortgage.

    Finally, the best way to payoff your mortgage WITHOUT being mandated to do so (via bi-weekly payments) is simple. Make one extra mortgage payment per year in the amount of your normal payment. Save up during the months and when you have that amount, put it toward the princpal. This amounts to 13 payments in a year. This is the very same achievement as if you made bi-weekly payments. The HUGE difference is by agreeing to make the bi-weekly payments, you do not have the luxury to "miss one" should the hot water tank go bad. By making one extra payment a year, you earn the same benefits but should something happen, you are under no obligation to make that payment.

    A lot of people don't believe that a little bit toward retirement, saving and pre-paying the mortgage adds up, but trust me, it does!

    To recap:

    1. Establish a six month emergency fund no matter what your financial obligations are;
    2. Once done, establish an automatic deposit into a retirement fund, either employer sponsored or private like a Roth or other IRA. Remember too, if you use an employer sponsored retirement fund, be sure to put in enough to qualify the company's match. It is free money toward your retirement.
    3. Establish an amount each month that you can pay yourself first, set aside and save toward an extra mortgage payment per year. When you have that amount, write two checks that month. The first for your PITI (principal, interest, taxes and insurance) and the second "toward principal only". Put both checks in the envelope and send it off. This allows you to keep track of each pre-payment you make.

    Finally, even though the investment property pays for itself, as an accountant the tax benefits of keeping it for the write off versus selling it and using the proceeds to establish that emergency fund, paying off other debt, opening a ROTH IRA and even putting a little chunck towards your mortgage pre-payment.

    You have lots of options and lots to think about, but there are great sites out there such as www.bankrate.com. Study and solicit the help of a professional. Best of luck and God bless.

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