This forum is so inspiring! I have spent quite a bit of time reading other people's journals and am very impressed with the progress some folks are making (particularly you, snowballer and dtr). It's amazing how big some of these numbers are and how people are just making them melt away. So I've decided to imitate their example (hey, it's the highest form of flattery, right?) and go public with my journey towards being COMPLETELY debt-free.
Even before I bought my house five years ago, I fantasized about doubling principal payments, thanks in part to books like YMOYL and The Simple Living Guide. But aside from a couple of extra principal payments here and there, I didn't get serious about pre-payment until recently. In part this was due to the initial adjustment period of homeownership (read: recuperating from shock at property tax rates), in part to the fact that until the economy plummeted my mortgage rate was lower than the rate I could earn with that extra money in a CD, in part to the hassle of having to take an extra check to the bank with a special slip whenever I wanted to make an extra payment, and in part to the feeling that, even if I did double the principal, the payoff (15 years) just seemed too far away. I couldn't really get motivated.
So, what changed? For one thing, I'm feeling more empowered after successfully saving up (in just under a year) $13,500 for a nused 2007 car, which I bought in August 2008. Every time I look at my car I feel a little burst of pride that I stuck to my fiscal goals and got exactly what I wanted without giving in to the new car urge! For another thing, even my low mortgage rate is now higher than any of the CD rates I could earn. Plus, all these stories about foreclosure and whatnot have got me thinking. (It also helps that I have recently figured out how to make the extra payments electronically. What can I say, I'm lazy!)
However, the thing that pushed me over the edge was sitting down late last year and applying "debt snowball" logic to my monthly budget. I had been reading wistfully all these pf blog stories about people finding an extra 200 or 300 or whatever dollars a month to pay down their cc or student loan or car debt more quickly. But it seemed to me that, given all the other goals I am trying to save for, an extra $150 (the current principal amount in my monthly mortgage payment) was about all I could possibly carve out of my monthly budget. Then I started thinking: one of the two biggest non-mortgage, non-utility chunks of my budget would no longer be there after August 2009. It's a $211 dollar monthly payment for the new boiler I put in almost three years ago. What if, when the boiler is paid off, I snowball that payment along with the doubled principal? And then, I thought (my excitement was growing here by leaps and bounds), what if, after Dec of 2010 when I reach my 6-month EF target, I snowball THAT $250 per month as well?
So I sat down with a pencil and notebook and calculator and came up with this rough plan (rounded numbers):
2009: Begin at $80,222; double principal plus regular payments ($3600 total) --> $76,919
2010: Begin at $76,919; double principal plus $211 per month plus regular payments ($6132 total) --> $70,787
2011: Begin at $70,787; double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> $61,655
2012: Begin at $61,655: double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> $52,523
2013: Begin at $52,523: double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> $43,391
2014: Begin at $43,391: double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> $34,259
2015: Begin at $34,259: double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> $25,127
2016: Begin at $25,127: double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> $15,995
2017: Begin at $15,995: double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> $6,863
2018: Begin at $6,863: double principal plus $211 plus $250 per month plus regular payments ($9132 total) --> PAYOFF!
I was astounded when I had worked this out. I checked the math again and again to make sure. Nine years? You mean I could pay this mortgage off before I turn fifty, without changing my current budget, and without counting on winning the lottery or getting anything more than a COL salary increase every year????
(Irony: this is almost the same payoff date as it would have been if I'd just started doubling the principal right away, 5 years ago when I bought the house. Oh, well!)
I thought, OK, (wo)man proposes and God disposes and Murphy's law and all that, but...once that emergency fund is in place, why not try to shoot the moon?
So here I am, six months in. Thus far, although my budget feels tight as a result, I have managed to make that $75 pre-payment out of each paycheck.
Jan 2009: $80,222
Feb 2009: $79,924
Mar 2009: $79,624
Apr 2009: $79,324
May 2009: $79,022
Jun 2009: $78,720
Jul 2009: $78,491 (the second $75 payment gets made next week!)
So far I'm on track to hit my goal of $76,919 by the end of the year. We'll see whether I can stick to it!
The tricky bit will be figuring out whether I've left myself enough elbow room in my budget, particularly in those chilly Northeast winter months, when the heat bill goes way up! And then there's the eternal potential increase in property taxes...