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Most people who accelerate their mortgage make one extra payment a year. Maybe two. Or they refinance a thirty-year mortgage at fifteen years. Yahoo! Canada has a story of one couple who paid off their $220,000 mortgage in three years.
How did they do it?
When I finally finished my master’s degree in 2000, we had a total debt of $52,000 from my student loans. This is when we made the decision that changed everything. With my new degree, I quickly found a job that paid well, but we decided that rather than rewarding ourselves for all those years of hard work, we would continue living like impoverished students for a few more years. In exchange, we figured we’d get a head start on the rest of our lives.
They worked hard. He clocked 90-100 hours/week at four jobs. She tutored and taught piano outside her regular job as a teacher. They did not change their lifestyle from that which they’d been living as students. They practiced extreme frugality. As a result, they were soon netting over $80,000/year after taxes.
Now this couple owns two cars and a home and are debt-free. Every cent they earn can be put toward retirement, charity, and other goals.
I am in awe.
The couple admits that this sort of choice probably isn’t appealing to everyone:
Let me make it clear that I wouldn’t recommend the number of hours that I worked for most people. But was it worth it for me? Absolutely. It’s been challenging and tiring, but exciting and rewarding too. Right now, I wouldn’t change anything for the world.
The article offers tips for those who might want to make a similar choice:
- Start early. Remember that compound returns favor the young, and that it never gets easier than now.
- Set concrete goals. Know why you’re making sacrifices, and have the courage to work toward them.
- Live on what you were making five years ago. Or ten years ago. You used to get along just fine on a smaller income, right? If you have the ability to revert to that standard of living, you can save a fortune.
- Pay off your mortgage faster. Choose one of the many ways to do this and stick to it.
I’m not ready for such extreme personal finance, but it’s inspiring to read about others who have made these sorts of Herculean efforts.
[How we paid off our house in three years]
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August 3rd, 2006 at 1:58 pm
This is pretty much what Dave Ramsey advocates, though more for debt removal than for mortgage elimination. There are quite a few encouraging stories of how people got out of debt by selling too-expensive cars (etc), and/or by getting second (and third) jobs.
Very encouraging stuff, and several awe-inspiring stories. See
http://www.daveramsey.com
[no compensation; just a happy web surfer]
August 3rd, 2006 at 2:18 pm
Wow, wow and wow. That is amazing. I don’t think I’d ever be able to do that but it is indeed shocking and inspiring to read such stories.
August 3rd, 2006 at 3:22 pm
That is an inspiring story for people who claim they will never be debt free. They exchanged three years of their life with no extras, long hours and a strict budget for a debt free life for the next 50 years. Most people will not be willing to forego their fun and the ability to spend money on frivolous things. But a few are willing. A positive example to inspire many other people.
August 4th, 2006 at 3:30 am
My husband and I are living under our means, are out of debt and have savings but we are nowhere near that extreme! I don’t think I’d like to do something like that, I like more pleasure in my life and that kind of overwork seems very bad healthwise. It would suck to work that hard and then drop dead from a stroke or something before you have the chance to enjoy your money. I’m glad it worked out for them though.
August 4th, 2006 at 7:45 am
I really have a problem with anyone advocating this sort of lifestyle, even if only for a few years. While it may have worked for this couple, how many relationships would utterly break down when one spouse was at work for 100 hours a week? That basically leaves enough time for them to come home, go to bed, and get back up and go back to work. For 3 years? I’ll take a few years longer to pay off my mortgage, rather than alienate my spouse and lose a marriage (which, I’m sure most would agree, is more imporatant than getting out of debt a little early.)
August 7th, 2006 at 5:59 am
Paying off your mortgage that early is a mistake for most people. A mortgage is probably the cheapest money you can borrow. If you have extra money there are so many better things to do with it; pay off credit cards and car loans, make sure you have proper insurance, set up an emergency fund, save for retirement, and many others.
Rushing to pay off a low interest rate mortgage without doing those other things is a big mistake. Plus paying off the mortgage removes a huge tax break for most people. Not that taxes should dictate your financial strategy, but it factors into how cheap borrowing money through a mortgage.
November 30th, 2006 at 12:50 pm
That’s an amazing story! If only I can kick my habit for expensive lotions and frequent meals… with a healthy salary, no family to support, and the willingness to work 90 hour weeks, right now should be the best time for me to save a large amount of money.
January 6th, 2007 at 1:46 am
I did pretty much the same thing when my wife started a new business. I was on the hook for her business loan as she had no credit so if her business failed I was going to have to make the payments out of my own pocket.
I got a second job(that I actually like more than my main job and pays almost as well).
Lived like I was flat busted broke because I didn’t want to go bankrupt if my wife’s business failed. So I saved pretty much every penny from that part time job and saved some from my regular job as well.
Because I could tell my wife I needed to save the money so I could pay her loan if she went under, it was easy to get her on board to go without some of the finer things.
This was 4 years ago. I still have the part timer but I don’t take much work from it in the summer months.
My wifes business is a huge success equity wise (she has taken a page from my book and postponed profits to build up equity) and it has been growing every year and she has built it up to the point where this year she will take dividends from that business that will be more than I make with my 2 jobs combined.
I have no credit card debt. My mortgage will be paid off in 3 years or less as I am contemplating prepaying a sizable chunk of it (20%)which is how I stumbled across this website(I have had this mortgage since 98). I have a defined benefit pension plan as I work for the Federal government(main job).
Have a modest retirement savings besides the pension. And have a sizable lump of cash in a savings account.
Biggest sacrifices:
No new cars. I have driven 2 cars in the last 10 years, one was 8 years old when I bought it back in 97 and my newer model is a 95 which I picked up this year. This will likely never change. I get no pleasure or feeling of status from having nice cars. I would rather be there in a beater than stay home because I can’t afford to go because I’m paying for a nice car. While some people argue about reliability of older cars, get them maintained regularly and you will come out miles ahead(pardon the pun)than if you buy new and take a depreciation bath.
I went on only a few big trips.
Postponed buying a computer until I could pay cash. Same with the 95 car. I pay cash for everything now, no credit.
Never eat out (once every couple of months we go for chinese)
Never rent movies, computer came with PVR so we make the most of our cable bill.
Get a second job and use it to save and pay down debt and you will be greatful you did in the future.
I am 31 years old.
June 29th, 2007 at 5:00 am
[...] How to pay off your mortgage in three years [...]
June 29th, 2007 at 10:28 am
I wish I knew how to get my husband to do something like this..i dont mind sacrificing a few years for a good rest of my life, but he sees a few years as “forever” and he doesnt want to be “old” and not be able to do “things” that he can do now…cause you know…after 30 years old you can only sit in your rocker apparently
June 29th, 2007 at 4:37 pm
I don’t advocate paying off your mortgage. I understand that it brings “peace of mind” to some people but I think there are better strategies to consider. If you are trying to accelerate your pay off, obviously, you’re paying more per month to do so. You can take the “extra” and invest it and over time with proper management, your assets will exceed your liabilities. If you have a $300,000 mortgage as well as $300,000 in liquid funds, wouldn’t you consider your mortgage as “paid”? In this scenario, you keep your largest tax deduction (tax planning is important) along with a nice nest egg.
Another point to consider is that home equity isn’t as liquid as most people think it is. If you worked hard paying off your mortgage and suddenly lost your job, or became disabled, you would look at accessing home equity for money (unless you’ve done a good job of saving). The only way to access home equity is through a cash-out refi, Home Equity Loan, Home Equity Line of Credit, or sell. Three out of four requires you to qualify with a bank. No job or not enough income may not get you approved.
Before you think about paying down your mortgage, pay off your credit cards, student loans, car loans, ect. first.
November 1st, 2007 at 11:32 am
Mike stated that:
“If you have a $300,000 mortgage as well as $300,000 in liquid funds, wouldn’t you consider your mortgage as “paid”?”
I really can’t say that I would see it that way for the reason that if I had $300,000.00 in liquid funds and a $300,000.00 mortgage, I would be losing money because of the interest that I am paying on my mortgage. (and lets not forget that the tax man will most likely tax the interest I would be earning on my $300,000. taking me further into the loss column)
Let’s say, for example, I were to receive a GUARANTEED interest rate of 5% on my three hundred thousand, that gives me a return of about $15000.00 per year. However, on my three hundred thousand dollar mortgage, at today’s rate (TD) on a 5 year term fixed interest rate of 7.440%, at the end of year one of my five year term, I would have made payments of $26200.44, with $4636.94 going to principal and $21387.00, to interest.Therefore:
$21387.00.(Mortgage Interest paid in 1st year)
-15000.00 (Interest earned on my $300,000)
=$6387.00(minus) Which means that the $15000.in interest I earn is being completely eaten up by mortgage interest along with an additional $6387.00! My $300,000 is not growing.
Now, if the same scenario applied with my having $300,000 in liquid assets except that my mortgage is fully paid, then my $15000.00 return on my investment is exactly that, $15000.00,(except for income taxes.)Plus, I will have the additional $26200.44 annually that I don’t have to make as mortgage payments. This is a scenario that I am far more comfortable with than knowing that if I keep my three hundred thousand dollar home for 25 years, with the same interest rate, I could pay the mortgage lender $355011.64 in interest alone, on top of the $300,000 mortgage which I will also be paying back. But, if I pay off my mortgage early, much of that $355011.64 is mine, on top of my $300,000 in liquid assets, along with the principal part of my monthly mortgage payment. This leaves me to comfortably invest, pay taxes on my investments, have a home maintenance fund, and have some peace of mind.
February 11th, 2008 at 12:29 pm
Have to agree with a few posters here, it does not make sense to pay the mortgage off early unless it is around 9% or higher, which is ~6.75% after taxes (assumes 25% braacket). The extra payments are much better off in a tax exempt accountwhich would easily return 8% annually over the long term. The house equity is not liquid. You must also account for inflation which will make your future payments cheaper as well.
February 11th, 2008 at 4:11 pm
[...] of extreme personal finance. In the past I’ve written about a guy who was homeless by choice, how to pay off your mortgage in three years, and about the most fuel-efficient driver in the world. Regular readers know of my fondness for [...]
February 11th, 2008 at 4:11 pm
[...] of extreme personal finance. In the past I’ve written about a guy who was homeless by choice, how to pay off your mortgage in three years, and about the most fuel-efficient driver in the world. Regular readers know of my fondness for [...]
February 12th, 2008 at 4:16 am
Thanks. Helped me re-evaluate the way we save and pay off debts. I realize that with a more targeted approach, we can eliminate our major debts without much sacrifice to quality of life. Now to coax/bribe the wife into it.
May 2nd, 2008 at 12:20 pm
Mortgage interest is not tax deductible in Canada (where the couple lived) so paying off your mortgage fast is a good idea for them.