Details on How I Paid My Mortgage Off Early

I write a lot about getting out of debt -- completely out of debt. Not just credit card debt, not just consumer debt, but all debt. As such, I have several posts on how to pay off your mortgage early since it's the single-largest debt that most people have. For a review of what I've had to say on the issue, see these posts:

• Should a Tax Deduction Keep You from Pre-Paying Your Mortgage?

• Why You Should Pay Off Your Mortgage

• When to Pay Off Your Mortgage

The other day (probably in response to one of these posts) I received an email from a reader as follows:

Why did you payoff the house early?  Were you already maxing out retirement options?  Was it possible to pay off the house in a short amount of time?  I was wondering how do you account for mortgages like mine which are $400k?  And will take quite a few years to pay off even if we focused on it?  And if we did so we'd have to forgo a maxing out IRAs and 401k.

Most of these questions are answered in the posts above (such as whether I suggest paying off the mortgage first or saving for retirement), but one thing that isn't is a detail of how I actually paid off my mortgage early. I may have covered this in an earlier post (I have so many posts, even I'm forgetting what I've written about) and the steps follow those I detailed in My Formula for Buying a House, but I thought they were worth covering just in case anyone missed them.

Here's how I responded to the email: 

I fully funded my retirement account, had an emergency fund, and so on, and still paid off my house. Here's how I did it:

1. I bought a house below what I could afford. Based on what the banks were willing to loan me, I could have had a house 2-3 times the cost of what we got. But the one we bought was nice, met our needs, was in a great neighborhood, etc. -- why did we need more?

2. We scraped together all we could to put down a good-sized downpayment. It was somewhere in the 30-35% range.

3. We lived substantially below what I earned. Thus we had great cash flow to save for retirement, fund our lifestyle, and pay off the house.

4. We put EVERYTHING extra into the house payment -- bonuses, Christmas gifts, extra income from a side business, etc.

It took us somewhere in the 7-year range to pay it off doing this.

It's that "simple." ;-)

Many people want to pay off their house early but don't want to (or can't/won't) follow steps 1-3. But they ask me how they can do it anyway. I don't think there's a way for most people to pay off their house early without at least doing a couple of these steps.

What do you think?

Comments

[LivingAlmostLarge]

I'm the reader who asked. Even with buying something affordable, able to max out retirement, 20% DP, and extra payments, I think my insecurity, stems because we have no retirement savings. We started out late because of graduate school so we have a house without retirement because we weren't eligible.

When you bought a house did you have retirement already going? I enjoy our house and it's not an investment. But I wonder if we should not have bought and instead kept everything invested? But there is no right answer.

[Big Cajun Man]

I am literally green with envy. I read your posting and understand the words, and have friends who did exactly the same thing (and I think my parents did as well), yet I cannot follow through on this.

I vow to try again, you have inspired me, if not shamed me into trying again!

C8j

[FMF]

LAL --

Yes, I had retirement and home payments going at the same time. See above.

[Lazy Man and Money]

Could you give details on percentages of mortgage to your income and ratios of that nature?

I'd like to try to do this, but in the area I live, the starter home can be $750K. Now my income is adjusted quite a bit to the cost of living, but it's not like I make 3 times what I'd make in a place with a $250K home.

For this reason, I still choose to rent as rents are (in comparison) around the same as in places where homes cost $250K. Thus I'm making more income, but temporarily giving up the dream of owning a home. Within the next four years, I plan to move and have a huge head start from the savings I'm making from increased income now.

[Suze]

Wow. I'm just amazed at a "starter" home at 750K.

I live in Michigan and we built our house in 1996, putting 25% down and taking out a 180K mortgage. We refinanced in 2003 (to a 15 year loan) and have been making extra payments since then. We should be paid off in 2016 -- so that's still twenty years of payments. I'd like to bring it down further, if possible, so I'll go back to crunching numbers.