A few weeks ago, J.D. and I were chatting when he asked me what it felt like to be debt-free. He'd read on my blog that I had no debt and was curious if I'd write about it for Get Rich Slowly. In particular, he asked me to communicate both how I managed to pay off my mortgage (the biggest debt most people have) as well as how it felt when we did so. I was happy to accept his offer.
Just to note, the purpose of this post isn't to debate whether or not paying off all debt is a good idea (versus only making mortgage payments and investing the rest, for example), so I've purposely left it out. My goal is simply to tell you our story — what happened and how we did it. From there, you can decide whether or not this path is for you. Since my wife and I are debt-haters, this option simply seemed natural to us. In addition, I can also tell you that living ten years without any debt has been a great feeling.
In the mid-90's, we moved to the southern part of the U.S. Here's how we paid off our mortgage in 1997 and haven't had one since:
- We spent less than we earned starting as soon as we got married in the early 1990's. We saved quite a bit, combined it with some previous savings and the equity from the sale of our Northeast home, and were able to come up with a down payment of about 35% of our new home's value.
- We bought a house we could afford. Instead of stretching to buy the biggest house possible, we decided what we needed in a house and purchased a place that met those criteria. In the end, we only borrowed about 60% of what the bank said they'd let us borrow.
- We applied everything we could to retire the mortgage: extra payments (from still spending less than we earned), pay raises, bonuses, income from a side business, my wife's income, and gifts. If money came in, it usually went to paying down the mortgage. However, we did not sacrifice what we considered to be better investments, such as fully funding my 401k.
- Within five years, we had the house completely paid off. We lived there a few more years, then when we moved to Michigan, we sold the house and paid cash for our new one. It's now been ten years since we've had a mortgage.
In the early years, I got the biggest thrill out of paying extra on the mortgage. I'd make an additional payment and wipe out six to eight payments at one time (Quicken would show me the results.) During the first year, I eliminated several years of payments on a 30-year mortgage (something like eight years) and the thrill of making such great progress simply built and built into a snowball of enthusiasm. Each payment I made had a dramatic impact on the total, which fueled more payments, which had more impact, which fueled more payments and so on and so on.
Then there were the big hits — when I got a bonus or when we decided to forego a big vacation to put it against the mortgage. These large impacts to the debt made a huge difference and added fuel to the fire.
As we got close to paying off the entire amount, we were looking for anything we could find to put towards the mortgage. When the day came when we paid off the whole thing, we were thrilled, but I don't think we realized the comforting feeling that was to come.
It's been a long time since we've had a mortgage, so much of the “newness” and “excitement” has worn off. But it's been replaced with a very peaceful feeling. You often hear the words “debt freedom” talked about, but can't really grasp what they mean unless you are free from debt. I can honestly say that there is a great financial peace in knowing you don't owe anyone anything.
Since we've paid off our mortgage, we've been able to save a bundle and give more to charitable causes we support. We're now on track to retire by age 55 with more than enough to live on and no debts outstanding.
Author: John ESI Money
ESI Money is a blog about achieving financial independence through earning, saving, and investing (“E”, “S”, and “I” — get it?). It's written by an early-50s retiree who achieved financial independence, shares what's worked for him, and details how others can implement those ideas in their own lives. (Note: ESI is also the owner of Rockstar Finance, the leading curation site for top personal finance articles.)
Congratulations! We paid ours off too last year. Like you said, there is nothing like the feeling. It’s also going to make it that much easier for me to quit my day job next year.
It has to be the best feeling to pay off your mortgage. I am getting close!
Congrats and thanks for sharing your story. We have a somewhat similar story altough we do invest some and prepay some but we are only 6 years (and maybe sooner) away from being mortgage free as well.
Buying a much cheaper, smaller house than we could afford has made a substantial difference to us as well.
It’s good to hear that you’ve never been tempted to “upgrade” once you’ve paid off your mortgage. It’s very reassuring!
That’s a great story! I just don’t know how you’d knock out 8 payments at once? Maybe I’m missing something… I’m still renting, so I have a long ways to go, but I couldn’t imagine ever paying 8 x my rent in one month. Thanks for sharing!
Thanks for this article! I love hearing how others have done it and what motivates them. Other than having enough money for retirement, this is my only financial goal. It wasn’t until an article in GRS that I pondered the idea of paying my mortgage off early. I have read so much about the pros and cons and decided that it would be SWEET to be 100% debt-free, so I have been putting as much as I can towards it ever since. A lovely side-effect of this is that I’m trying to live even further below my means in order… Read more »
We got ours paid off early this year. The ramifications are still sinking in…all of which are well worth it!
Congrats and good luck going forward.
The only issue I’ve run into since going debt-free is finding the motivation to continue working at the rate (number of hours) I have been.
must be nice!
my mom has two homes.. one she currently rents out.. i wonder if this is a good time to sell the rental in order to pay off her mortgage in full? or should she hold on to it for a while longer?
My wife and I are very close (less than a year) to having our mortgage paid off. I bought the house about five years ago. We’re following pretty much the same plan. I’m not quite to the stage of digging through the couch cushions looking for money to pay it off an hour sooner, but now that I think about it, that might not be a bad idea… Her parents did the same thing sometime in the 1980s, and both of them retired in their early 50s despite very modest salaries. One thing that helped us was that we started… Read more »
Right on, Free Money Finance! Thanks for sharing your story. We were on track to have our first home paid off by the time we were 55 (edited–I rechecked my math, and it actually would have been 50). If we were still living there we’d almost certainly be paying twice the principal per payment and would have the mortgage killed before 50 (edit to make that 45). But an opportunity arose to buy another affordable house and rent out the first one. We’re still psyched to see the principal value on that house drop in ever-increasing increments. (In fact, this… Read more »
Really inspiring! I’ve never paid off a mortgage but you make it sound so doable. But I can say this for myself: I have no debt right now of any kind.
Here are the factors behind how we did it… 1) Move to cheap area: We moved from an expensive place to a cheap place (California to the Northwest, about 8 years ago). Sure, we missed a lot of appreciation in the last few years (over $500K) but we left that crazy area behind for a “more normal” place (and pace). See if your work will support telecomuting! 2) Don’t “upsize” unless you have to: We had enough money ($250K) at the time to pay cash for the home that we bought or , instead, to make a big down payment… Read more »
JB —
The reason I was able to eliminate many payments early on was that most of the payments in the first years of a 30-year mortgage usually go toward interest. Instead, I made payments to the principal (a small percentage of the total payments early on) which also eliminated the associated interest payments I was supposed to make. This way I was able to eliminate multiple payments at once.
I agree completely. Debt-free living is the only way to go! You can’t put a price tag on the freedom.
Great post and congrats on being mortgage free for so long! We are not even close to paying ours off, but when we refinanced from an ARM (it was a great rate…until it wasn’t!) we set up a 15 year fixed. I always pay at least $10 of extra principal each month, and it’s nice to see that on there each statement.
Great post, I’d love to hear more about your extra payment process, auto pay or checks, principal vs. interest and how did you get Quicken to track it for you. I’ve got my mortgages in Quicken (we have a primary home plus investments) and when I try to get Quicken to track my payments it deducts the whole payment from the principal (even though I’ve put in all the terms, interest rate, etc.). I hate Quicken and it hates me.
That’s awesome… we just got started with our first house. Something to aspire to!
Congrats on one of life’s greatest financial accomplishments (THE greatest, IMO)! Seems like most folks get “debtor’s dementia” when they take on a mortgage … can’t imagine ever paying it off or remember that the interest and cash flow demand is killing them financially. Pretty soon second mortgages and home equity loans seem like good ideas. Go figure.
You are an inspiration. I would just be happy getting my unsecured debt paid off.
Thanks for sharing your story!
Sam, Elsewhere in Get Rich Slowly is a downloadable amortization schedule (posted on 10/1/07). It is an awesome tool. Plug in your numbers and the results are very inspiring. Personally, I like to plunk down $10,000 all at once when I prepay. That way you can check your amortization schedule and see the $10K increments when they go in. Maybe I’m anal, but I like to ‘double check’ how my bank computes the interest and payment schedule. Making fewer large payments is easier to track compared to lots of small additional payments. Also, I am a firm believer in establishing… Read more »
I paid off my first house (all $180k of it) in two years, by age 27. Like you, I lived very frugally and dumped every single spare penny into the mortgage (having a highly paid consulting job didn’t hurt either). It was a great feeling not being in any debt, but like poster #6 I had trouble staying motivated and continuing working. I’ve said it before, debt is a great motivator for going to work, so I eventually upgraded to a bigger house along with a mortgage that I can wipe out in a few years (or immediately, if I… Read more »
I completely agree. Debt-free is the only way to go. The peace of mind that brings is worth far more than the potential additional sums of money that you may or may not end up with not paying the house of early. We too scrimped and saved and sent extra money in whenever we could. Three months before the big .com crash our investments had grown to equal what we owed on the mortgage. Due to my brilliant forecast of the stock market we got out at the very height of the market. Okay, that is how I like to… Read more »
We paid off our mortgage in short order, and while we do look at bigger, “better” houses sometimes, we haven’t moved. When we were looking for a house, the bank told us how much we could borrow and what the monthly payments would be. I think a lot of people take that kind of information from a bank or real estate agent and then buy as much house as they can. Instead, we chose a much cheaper house and paid 20% down, so the mortgage wasn’t that big to begin with. But we had bought when rates were realy high,… Read more »
Thanks for your great story of encouragement for others. My wife and I paid off our mortgage earlier this year and it has been great as the payments we were making to the mortgage company are now going into our investment account each month. There is nothing like the peace you get when it sinks in that your are totally debt free and have much less stress and worry. That paid for roof over our heads, results in a much more restful sleep each night.
My wife and I are tossing around the idea of moving into my parents house and living with them for a few years. We would save TONS of money. They would charge us nothing for rent, food, utilities, etc. We would just pay our insurance. Imagine having your paycheck go directly into your savings account. It’s kind of a hard deal to pass up. We get along with my parents fine. If we can just get past the social stigma, we’d have a HUGE down-payment for a house in the future. Maybe even the WHOLE payment. Any thoughts? Anyone done… Read more »
This article was so timely for me. After finding your amortization calculator this morning I made up my mind to go ahead with my pay-off-the-mortgage plan. I ran to the bank at lunch and plopped down $25,000 towards my loan. When I came back I found this article and it summed up my feelings exactly. I am so excited about paying off my house 4 years from now if I stick with the plan. It is good to hear other success stories and how much peace being debt-free brings. Thanks for the great article!
I’ve been debt free since age 47 and we own 2 homes free and clear, have good retirement savings and college funds. We both started with nothing. How did we do it? Live below your means, don’t look at what other people have, max out your 401k from the start, if two incomes, buy a house you can afford on one income, don’t be afraid to try for a better paying job/position, work hard, but have fun. Enjoy the free or cheaper things in life like a sunny public beach, walk in the park, library, camping, bird watching, reading, fishing,… Read more »
Matt, as long as you stay married. Sounds nice in principal, but living with people always puts more stress on a relationship. You have to behave and have more rules. It’s life right?
I know tons of couples who try to do it, the longest was 6 months. Usually the person whose parents it’s not has a harder time adjusting. But it’s like living with roommates.
Seven years ago my wife and I bought modestly, negotiated well, plunked extra down up front.
Last year I lost my job due, in part, to health matters. Thirteen months from next week, right on schedule, our house will be paid off.
Even if Social Security continues to stiff-arm me, two years after the house is paid off, we will be debt free again.
That was a fun article to read, I always enjoy stories of people taking finance to somewhat extreme levels. I am curious, though, you mentioned something of a snowball effect, but wasn’t it really the opposite? If you make an extra payment in year one, you can see several payments in year 30 knocked off, but as your principle dwindles down, the amount you save in interest per extra dollar paid gets smaller and smaller. You would have to really hate debt to do this I think. I would set investment goals and take advantage of the tax benefits of… Read more »
He referred to it as a snowball effect because once an extra dollar is paid off early, you save the interest on that dollar over the life of the entire loan. Those early payments pay dividends (so to speak) through to the end of the mortgage period.
Okay…I just have to ask…what if you invested the money elsewhere that you used to pay off the mortgage?
What about your mortgage interest being an income tax preferred debt?
I obviously do not know your age…I’m assuming you have enough to save for retirement…
I’m all for the feeling of “peace” but is this really the most effective way to create wealth?
I hear you, Rhonda, and I’ve been having this conversation a lot lately as I work through the alternatives. Conventional wisdom says that it’s better to take the mortgage and invest the lump sum. However, I’ve run the numbers several times and the end result of paying cash for a house and investing what would have been my mortgage payment vs. taking a mortgage and leaving the lump sum conservatively invested is nearly the same (give or take about $30k) at my expected retirement age. I suppose I could put the money into riskier investments for a hopefully larger return,… Read more »
Thanks for your story.
It’s interesting that getting of of debt is still a concept that most people doesn’t understand or believe in.
We and our parents are debt generation…
@Rhonda,
I feel the post adequately addresses the questions you’ve raised. A disclaimer states that this story is not intended to be a debate about the best use of the extra money used to pay off the mortgage. The writer also clearly states that their 401k was fully funded in the process. This post is merely one person’s story of what he did and how it made him feel.
Additionally…
At my marginal tax rate, I’d reduce my taxes about $2500, but I’d be paying about $10k in interest. I’m still out $7500. Seems like the mortgage holder’s the one winning in that case. Do you disagree?
To Matt (Comment 25), I’d advise against it. I did it with the inlaws, may have been different circumstances, as it was a small house, and we had a kid, with another newborn on the way. I thought we’d save a packet, and we did save a bit extra, but it’s not really worth the savings as opposed to renting a place. I still chipped in towards bills etc, about $100 a week, and still bought our own groceries ($200 a week), and so opposed to renting I think we would have saved about $200-250 extra a week, but to… Read more »
I am making modest additional payments on my mortgage. Like JD, my father died early, so I balance living in the now with trying to be financially sound. To me, I’d rather go on trips while I’m still alive than risk doing nothing, being overly frugal, and dying early with no life experiences.
Wow, this post was really inspiring. I recently (1 1/2 yrs ago) purchased my first home with my new wife. We make an additional $100 payment to our mortgage every month to lessen the ultimate interest burden. This post is inspiring me to make a plan to pay it all off even earlier! Thanks!
JC — In addition to Nickel’s response (which was accurate), there was also the emotional snowball — the more we saw the debt dropping, the more we wanted to add to it to pay it off asap. Rhonda — I knew someone would bring this up. 😉 As noted in the post, I did NOT sacrifice retirement savings during this time. I put in the maximum I could into my 401k — not just the max to get the full match, but the max I could within my company’s plan. That said, it’s likely that the numbers will show a… Read more »
JC, thanks for sharing. You cannot put a value on peace of mind.
My husband and I bought a home we could afford on 1 income. We then worked at paying the house off. Sometimes paying 200.00 a month extra sometimes a lot more but always paying something extra. I had retired at age 48 a couple years ago and my husband was going to retire at 55. We were within 3 months of paying the house off when he suddenly and unexpectedly passed away at age 52 earlier this year. I paid off the house as scheduled and I have been able to live comfortably ever since he passed. It is huge… Read more »
J.C. at #30, in regards to interest: When you make extra payments, it’s going toward the back end. So the extra payment I make goes towards the very last payment, which would be the one with the lowest interest payment. So you maintaing the snowball effect. Rhonda at #32, yes, theoretically you’d be better off investing the money rather than paying off the mortgage–if everything goes right. The problem is knowing if everything’s going to go right. When I make an extra house payment, I’m absolutely, positively guaranteed a 5.75% return on my money. There’s no investment that’s an absolute… Read more »
Great post! I always wrinkle my brow when I see a question on a form about my home — “Do you rent or own?” Well, neither … the bank owns my home, and I’m slowly buying it from the bank. What a great achievement to *actually* own your own home!
How do you know FMF that you aren’t losing money with a paid for home instead of renting? Like the MMND and the lost opportunity costs?
I like owning too, but I just wondered if you considered renting and not having a paid for mortgage?
FMF? MMND?
Wow. My goal is to retire by 47. Sounded like a good number. If this is how you do it, count me in. I feel inspired.
LivingAlmostLarge — Not sure what the MMND is, so I’ll skip that part. No, I never really considered renting, but I understand what you’re getting at and have seen how this may be a suitable (and profitable) option for some. Renting (even renting a house) presents a whole set of lifestyle challenges that we’re just not up for. So even if renting was slightly better than owning in every case (which it isn’t), we would have paid more to own our house simply to avoid dealing with a landlord, not being able to customize the property, having an on-going payment… Read more »
I’ve run those numbers, too, but in the end, I come out even. The interest on the money I would use to purchase a house covers my rent almost exactly, but over the long haul, renting subjects me to inflation and my landlord, who can decide to sell the property out from underneath me. Owning outright is a hedge against future inflation, and nobody is going to evict me as long as I continue paying my property taxes. As I wrote before, I suppose I could continue renting and put the money into higher-risk investments in the hopes of a… Read more »
MMND (Mommy Millionaire Next Door) argues that renting makes her richer as opposed to owning. Here are some of her posts regarding this line of thought: http://millionairemommynextdoor.blogspot.com/2007/10/i-get-richer-as-renter.html http://millionairemommynextdoor.blogspot.com/2007/10/dispelling-myth-that-home-ownership-is.html Basically, she says that the (stock) market will generate higher returns than a house over the long run, even factoring in inflation, etc. Check it out. There are good reasons for owning a house (as I’ve noted in my blog), but financially speaking, renting will generally get you further ahead if you run the numbers, using historical stock returns vs home prices (the recent housing boom phenomenon not withstanding). Of course, having… Read more »
The thrill of paying off a mortgage is the opposite of the agony of never paying off rent.
I hope you’re all motivated to pay off that mortgage now.