Author Topic: How I paid my mortgage in 5 years  (Read 3064 times)

Thoughtful Mule

  • 5 O'Clock Shadow
  • *
  • Posts: 46
  • Age: 35
  • Location: Florida
How I paid my mortgage in 5 years
« on: May 25, 2018, 04:00:08 AM »
Spoiler, it was through earning, saving, and investing. But the details are more interesting.

We purchased the home in late 2013, lived there for a year while renting out our prior house. The first year allowed us to get "primary residence" financing with a low interest rate and smaller down payment. We then moved back to the old house and brought renters in. I saved up some more money over the next year or so before another real estate opportunity came up. This one was key.

I purchased the third house in 2015 undervalued, but in pretty bad shape and with a terrible tenant. The tenant was evicted after only a few (painful) months and I went to work on a quick rehab to get some nice renters in there. After another year lease, my tenants got divorced and moved out. The market had really heated up, so I decided to finish off the renovations and sell.

About the time the rehab house sold, we moved back to the original home. I took the proceeds from the sale including my down payment, the renovation costs, and about 40K in profit and paid down the mortgage. Another 6 months later (today) and I've just made my last payment.

Do you have a plan to, or have you already paid off a mortgage? How'd you do it?

BTDretire

  • Handlebar Stache
  • *****
  • Posts: 1989
Re: How I paid my mortgage in 5 years
« Reply #1 on: May 27, 2018, 09:09:22 AM »
Some would ask why pay off a low interest mortgage, when it may be tax deductible, and you would have earned
much more in the stock market.
  That said, we paid cash for our home 24 years ago. I don't regret it, but I don't know that it was the best financially.

TheWifeHalf

  • Bristles
  • ***
  • Posts: 412
Re: How I paid my mortgage in 5 years
« Reply #2 on: May 27, 2018, 09:31:37 AM »
We bought a house, that no one but went through in 5 months, back when interest rates were 12%! It was 1980. When they finally came down, rather than refinance, we just paid the whole thing. It was about 8 years later.
We did this by DIYing most of the remodeling, living frugally, and both of us being dedicated to this being what we want to do.  We did not have everything we do now. I remember when cable went by out front, and a gal came to the door wanting to sell it to us. I said we didn't want it and I can still hear her saying "You DON"T want cable?????"

Thoughtful Mule

  • 5 O'Clock Shadow
  • *
  • Posts: 46
  • Age: 35
  • Location: Florida
Re: How I paid my mortgage in 5 years
« Reply #3 on: May 29, 2018, 09:58:54 PM »
Being an analytical thinker I debated whether to invest my proceeds in the market or pay off the mortgage, knowing that long term smart investing can come out ahead. Running the numbers there was virtually no change in FI date either way. In the end, I look at it as a splurge. For the hard work, and frugal living the reward is a weigh lifted off my shoulders.  Some people buy cars or remodel their home... mustachians pay it off or invest. Your choice.


The mortgage was number 7 on our savings hierarchy:

0. Establish an emergency fund to your satisfaction   
1. Contribute to your 401k up to any company match   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.   
3. Max HSA   
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)   
6. Fund mega backdoor Roth if applicable   
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.   
8. Invest in a taxable account with any extra.   

Our incomes are good, but not off the charts. I am a mechanical engineer, my wife is a middle school teacher (currently taking a year off to take care of our daughter).

Thoughtful Mule

  • 5 O'Clock Shadow
  • *
  • Posts: 46
  • Age: 35
  • Location: Florida
Re: How I paid my mortgage in 5 years
« Reply #4 on: May 29, 2018, 11:13:45 PM »
Another kicker in the decision to pay off the mortgage is that the money is still available to invest. Through a home equity line of credit, investment property purchases / renovations are entirely possible. With some effort and risk that the overall returns could be greater than investing in the stock market. The house is now a small personal bank. Powerful stuff.

...or we could do nothing but relax.

Choices.

MasterStache

  • Handlebar Stache
  • *****
  • Posts: 1410
Re: How I paid my mortgage in 5 years
« Reply #5 on: June 01, 2018, 05:41:04 AM »
Being an analytical thinker I debated whether to invest my proceeds in the market or pay off the mortgage, knowing that long term smart investing can come out ahead. Running the numbers there was virtually no change in FI date either way. In the end, I look at it as a splurge. For the hard work, and frugal living the reward is a weigh lifted off my shoulders.  Some people buy cars or remodel their home... mustachians pay it off or invest. Your choice.


The mortgage was number 7 on our savings hierarchy:

0. Establish an emergency fund to your satisfaction   
1. Contribute to your 401k up to any company match   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.   
3. Max HSA   
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)   
6. Fund mega backdoor Roth if applicable   
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.   
8. Invest in a taxable account with any extra.   

Our incomes are good, but not off the charts. I am a mechanical engineer, my wife is a middle school teacher (currently taking a year off to take care of our daughter).

Just curious how choosing to pay off the mortgage vs investing didn't affect your FI date? I mean considering the S&P returned over 14% in the past 5 years. Mathematically that doesn't seem to make sense. Had we chosen to pay off our mortgage instead of investing I would still be working. Congrats on paying it off btw. 

boarder42

  • Walrus Stache
  • *******
  • Posts: 7193
Re: How I paid my mortgage in 5 years
« Reply #6 on: June 01, 2018, 07:26:40 AM »
Another kicker in the decision to pay off the mortgage is that the money is still available to invest. Through a home equity line of credit, investment property purchases / renovations are entirely possible. With some effort and risk that the overall returns could be greater than investing in the stock market. The house is now a small personal bank. Powerful stuff.

...or we could do nothing but relax.

Choices.

so hilarious money available to invest via a home equity line of credit which isnt comprable to a fixed rate mortgage b/c its variable.  that would be an HEL--- lets see what those rates are today vs what you could have locked in at during the bottom of the rate market in summer 2016

current originating 30 year mortgage rate 4.64%
bottom of the market 2016 3-3.25%
Fixed HEL's are usually about .25-.5 higher

Opportunity cost of your money over the last 5 years 65.89% return.  and dont say it just as easily could have been down b/c the percentage of 5 year periods the market loses over is small compared to the percentage of periods the markets win
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

boarder42

  • Walrus Stache
  • *******
  • Posts: 7193
Re: How I paid my mortgage in 5 years
« Reply #7 on: June 01, 2018, 07:28:43 AM »
Being an analytical thinker I debated whether to invest my proceeds in the market or pay off the mortgage, knowing that long term smart investing can come out ahead. Running the numbers there was virtually no change in FI date either way. In the end, I look at it as a splurge. For the hard work, and frugal living the reward is a weigh lifted off my shoulders.  Some people buy cars or remodel their home... mustachians pay it off or invest. Your choice.


The mortgage was number 7 on our savings hierarchy:

0. Establish an emergency fund to your satisfaction   
1. Contribute to your 401k up to any company match   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.   
3. Max HSA   
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)   
6. Fund mega backdoor Roth if applicable   
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.   
8. Invest in a taxable account with any extra.   

Our incomes are good, but not off the charts. I am a mechanical engineer, my wife is a middle school teacher (currently taking a year off to take care of our daughter).

Just curious how choosing to pay off the mortgage vs investing didn't affect your FI date? I mean considering the S&P returned over 14% in the past 5 years. Mathematically that doesn't seem to make sense. Had we chosen to pay off our mortgage instead of investing I would still be working. Congrats on paying it off btw.

correct its highly unlikely that paying down your home in the largest bull market in history didnt move your FI date.  if i say i'm going to FI on date X with paying down my home and that doesnt move i've not looked at the other side of the equation - if i'd invested my date would have moved up.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

coynemoney

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: How I paid my mortgage in 5 years
« Reply #8 on: June 15, 2018, 07:37:48 AM »
I'm thinking the fact that you don't have a mortgage payments makes your FI number quite a bit lower than if you do have one?

Say your mortgage payment is $1500/month that's another 18K*25=$450,000 needed in your stache to cover that payment. I could be totally wrong/naive but that's how it makes sense to me?

boarder42

  • Walrus Stache
  • *******
  • Posts: 7193
Re: How I paid my mortgage in 5 years
« Reply #9 on: June 15, 2018, 08:01:45 AM »
I'm thinking the fact that you don't have a mortgage payments makes your FI number quite a bit lower than if you do have one?

Say your mortgage payment is $1500/month that's another 18K*25=$450,000 needed in your stache to cover that payment. I could be totally wrong/naive but that's how it makes sense to me?

yes in general this is totally wrong for

1. your mortgage doesnt index to inflation
2. your mortgage expires at some point meaning you dont have to pay on it forever.

A general rule of thumb that acutally allows for you to have a Safer FIRE - typically 2-3% better chance of not running out of money historically is all you need is the balance of the mortgage remaining in extra money .  so i you plan to FIRE with 1MM and spend 40k - with a 200k mortgage balance remaining you'd only need 200k extra to retire on.  and you will reach your FIRE date sooner in almost all historical cases. you may look at that and say but tahts 200k more that i need now i need 1.2MM.  but if you were investing the time to get to 1.2MM will be faster than the time to get to 1MM if you were paying down your house over the same time frame.

Cfiresim.com is a good tool to test this.

enter 2018 - 2057 in the top two boxes

then enter 1MM in the stache size - and 40k in spending - it will spit out a 89.81% chance of success
now go back and change 1MM to 1.2MM and at the bottom enter 11460(this assumes a 30 year mortgage of 200k at 4%) in additional spending from 2018 - 2047 and make inflation adjusted false.  91.67%

once money is in that mortgage its not really simple to get back out at most peoples sub 4% rates we have now.
My Miles Journal -Learn to Manufacture spend(MS)

Best bonuses on Credit cards right now
SW Plus Card 50k Bonus - use it with the Companion pass hack!

Personal Capital - Track your spending and Investing

DreamFIRE

  • Pencil Stache
  • ****
  • Posts: 688
Re: How I paid my mortgage in 5 years
« Reply #10 on: June 15, 2018, 07:34:44 PM »

Congratulations!  I've paid off 2 mortgages in my life, both 15 year loans paid off in as little as 2 years.   We're going back 20, 25 years.  Interest rates were much higher back then, and the market tanked after the second home was purchased and didn't recover for over 13 years.  It was a very satisfying to get them paid off.  This was way before FIRE was on my radar, but I was really able to boost my savings rate after that to surpass $1M some time ago.