Extreme Personal Finance: How to Pay Off Your Mortgage in Three Years

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.

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.

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.

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.

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

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.

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.

@ Peter # 6 post.

Peter Says:
“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.”

You mention that this is a huge tax break for most people. In the article they mention living in Canada. Well, up here in Canada we cannot claim mortgage interest against our income taxes.

Mortgage interest is usually much cheaper than say Credit Card interest I’ll agree. In the article he states that they took on a 5 year 5.2% mortgage for $220,000 and wanted to pay it off within 10-15 years.

5.2% on $220,000 is alot of money, even if it is ‘cheaper’ than other interest rates. The point is it’s borrowed money, it’s still debt. You owe it to someone else. Might as well get rid of it and be free as soon as possible so you’re not a slave to the bankers.

I know this is a really old article, but I’m a newer reader (found you last week!) and I’d like to point out that your link to the original Yahoo! story is now a dead link.

You may want to consider removing it, or trying to find where the story lives now.

Keep up the great work, I love reading your blog!

The decision they made was really smart (to continue living like impoverished students). Many people graduate from university, and seem to start a spending spree. This will only dig their debt dipper, and dipper. This couple played things out really smartly.

I am a foreigner and have been living in this country for 10 years. I have been brought up in a very tight budget environment. I don’t recall eating out with my family as a kid, nor do I remember being taken to a dentist by my parents. My parents weren’t well off, but chose not to take care of even my essential expenses, although they could have afforded. I wish they had though, I have very unhealthy teeth. This frugal upbringing made frugality a lifelong habit for me.

I started working at age 15. I was a very hard working student, got scholarships from best schools. The scholarships I got throughout my education could easily top 500K (I have PhD in Electrical Engineering and a masters degree in Applied Mathematics from an Ivy League). I never lived a lavish lifestyle. In gradschool, I saved my stipends as much as I can and it proved to be very useful. Especially, through couple of summers I couldn’t get scholarship, I lived on the money I saved before.

I have been living on my own money since age 15. I always lived way below my means. I never ever had any credit card debt or any other kind of debt. I have been working for two years now. Although I can buy a house for 500K and 50% down payment, I am still very careful with my money. I don’t have a car. I am commuting by bus, 20 minutes each way. I wouldn’t enjoy driving a car knowing that I have monthly payments to make.

When people ask me why I don’t have a car or a house, I make up silly reasons. In my first year into American culture, I was explained that “people who travel by bus are losers”. What can I say? To most Americans, I would very well be a good example of a loser. Debt is like the worst nightmare to me.

Don’t get me wrong though. I eat very healthy, I dress trendy, I occasionally eat out. I buy gifts to other people. But still, I am very careful with money.

I don’t think buying a house is an investment, or “equity building” as Americans believe. Over all these years, I noticed that Americans are terrible when it comes to saving. Since buying a house is like a “forced saving” for them, they think that buying a house is the smartest thing to do.

If I ever buy a house, I am planning to pay most of it by cash. I believe that best way to finance mortgage is cash. I think I can do better things with my money than paying 5.5% mortgage interest. And I also think that the tax benefit of mortgage interest is a big lie. It is like Chase Freedom offering 100$ cashback to people who spend 10 thousand dollars.

When I see other people’s comments suggesting that “paying credit card debt/loan rather is better than paying of mortgage debt”, I am thinking which credit card debt/loan, I have none.

I’m 31 yrs old. I have refinanced my mortgage a month ago after now having lived in the house I bought new for 2 years.

I’m living by myself, I send a good chunk of money monthly to my family as my parents don’t work, and have been able to save up about $45000 in the 2 years I’ve lived in this house.

I’m not a big earner, but I make a decent salary. I think part of the reason I was able to save so much while still giving to my family is because I’m single.

When I wanted to refinance, I took about $35000 of my savings and applied it to the principal so that the required monthly payment would go down drastically. Combining the large payment and the much lower rate, it went down by about $330.00 a month.

Now I feel a little more secure in that I know my REQUIRED monthly expenses are lower in case something bad happens (in this shaky economy).

I am planning to payoff my mortgage in 3 years from now though. I calculated the amortization schedule and if I take the $330.00 in savings each month and instead apply it to the principal each month and continue with my current savings rate, I will have enough money saved up to payoff the entire mortgage at the end of 3 years.

No matter how I calculate it, I save more by not having to pay interest than I do in getting a small tax deduction on the interest.

Investing in stocks, funds, etc is too much of a risk to guarantee a rate of return which is higher than what I pay if I do not have a tax deduction.

Once I’ve paid off the house, I can continue saving money and I can use portions of that money to risk in investing in the stock market.

That’s just my plan and I feel it provides me with peace of mind that I don’t owe the bank. My property taxes and insurance are not too bad either, so I think I could always have more than enough in savings to cover that.

I STRONGLY disagree with anyone that thinks that paying off their mortgage early is the wrong thing to do.

I have a paid off mortgage and if I was making mortgage payments the payment would be $2350 per month. There is no investment out there that’s going to return $2350 per month on my money.

With the extra cash I’ve been saving I’ve been purchasing real estate from the banks for $5K to $20K and fixing them and reselling them for $99K to $217K.

I’m not again investing. Investing is smart! Everyone is on a different level, but When you don’t have monthly payments going out all over the place you’ll save more money and have more money to spend!

From a micro-economic perspective it is usually very good for people and businesses to pay off all their debt as fast as they can.

But from a macro-economic perspective, every penny of paid-off debt is one less penny in the economy. The net result of everyone trying to pay-off their debt is that there is no more money. It is a nasty cycle, nearly a hundred years ago, the United States granted the banking industry an exclusive cartel on supplying the nation’s money.

As the economy grows, as the population grows, more money is needed to keep the economy from crashing. Rather than just “print” more money, the banks’ accounting schems require that when money is created an equal and opposite amount of debt is also created. From the banks’ perspective, there books are still balanced. However, they take that positive account and lend it to us as home mortgages, business loans, car loans, and so on. Then charge us interest for something they created through accounting entries.

If you read these stories of how people paid off all their debts, you’ll notice they had to live like they were impoverished. They had to live in a world of scarcity. This is a direct consequence of how our society creates money. Instead of letting the government create money without attaching a debt, we allow a private cartel of bankers to create money and an equal amount of debt at the same time. The end result is that every penny in our bank accounts is a penny someone, somewhere, had to borrow. And the interest payments, rather than benefiting all of society, go to a privileged few at the top of the economic pyramid.