This isn’t our house, but it is pretty nice to look at…
Today is July 5, 2019. At approximately 9am, the financial institution carrying our mortgage debited one of our accounts twice. First, was the standard bi-weekly mortgage payment of $231.78. Second, was a much larger amount. The larger amount was the balance of the mortgage principal and associated penalties and fees.
As of 9am on July 5, 2019, our mortgage had been paid off and we were, again, debt free! We held the mortgage for only 282 days.
September 28, 2018 – July 5, 2019
“We hardly knew ye
…and good riddance.”
It seems to be a thing to do that, when you reach such a large milestone, you share your success, so that’s what we did. Basically, this was our version of yelling it from the goddamn rooftops that we had no more debt, and very quickly, we realized that there was a LOT of interest in how we managed to pay off a mortgage THAT fast.
So, allow us to explain how we managed such a rapid paydown.
To begin, some background. Currently, we are 33 and 31 with municipal government jobs, and we purchased the house at the ages of 33 and 30. Yes, one of us both purchased and paid off the house without aging! We’re 2 and 3 years out of grad school, respectively, however, we have been working since 2014 and 2015. We live in Ontario, Canada and paid the mortgage off with our own funds – no help from friends, family, or inheritance, etc. We also save ~67% of our after-tax income, which is ~$61,000 in savings/year, and does not include other monies we do not handle, such as pensions, etc.
First, we set the goal of a quick pay-off. Because of some reasons, including some of Calm’s experiences growing up, she really wanted the security associated with owning a home – and owning outright. She wanted to be able to say that no other person or corporation had an interest in our house. It was ours, plain and simple. This was something we decided upon after we were married in 2015 and it’s something that guided our house search.
Second, we wanted to have a paid off house (or close to) when kids became a topic of discussion. Essentially, when we started searching aggressively in early 2018, we decided that we would not purchase a house we could not pay off in 5 years; it became part of our “Need” list when we were househunting. After running the math and accounting for regular and unexpected maintenance, we knew that the maximum mortgage we wanted to carry was $200,000. Full stop.
Third, we had to account for the funds we had. When we started the househunt, we had $180,000-200,000 in liquid assets, which we had saved up over the previous 4-5 years, to dedicate to a down payment. We were also preapproved for a $500,000 mortgage. Way too much for our goals. A $500,000 mortgage + our downpayment would have allowed us to buy literally any house we wanted in the town we live in, but we didn’t need a big house and you don’t have to use the entire mortgage allotment they provide you, or so we’re told.
The house we purchased was $270,000; we put $205,000 down and took out a $65,000 mortgage. Imagine being preapproved for $500,000 and being like “Yeah, we’re only going to use 13% of that.” Living below our means REALLY helped us.
What also helps is that the house is small. It’s ~1,000 sq ft of living space, so if there are any major expenses like redoing a roof, the cost is not prohibitive. For instance, a steel roof was quoted to us at $9,000. Less than two months’ savings. Not bad at all.
When we closed on the house, we had ~$20,000 held back in case a major expense arose. It didn’t. So we dropped $9,750 on to the principal (our annual 15% principal prepayment allowance) before the third payment to lower the overall principal and, by association, the interest payable at each payment thereafter.
Then we started saving. We started a Merc The Mortgage fund to track our progress and budgeted monthly. We also decided to share our journey with bi-weekly posts on our blog, chronicling our progress. We think that it certainly helped to visualize the progress but also kept us accountable to those who would check it and read our stuff.
We discovered that we saved an extra $500 each month compared to renting. That extra money went into savings. On average, we save over $5,000 each month so we knew we’d be under a year to pay everything off. We save so much because we’re diligent with where we choose to spend. We pricematch and save on groceries each week; we camp cheaply for vacation instead of travelling anywhere extravagant or far away; we have 1 car between the two of us, which keeps costs down and is almost unheard of for those living rurally; and, we also dialed back on dining out, which can be a big money sink.
Original projections were December 2019 until we realized we were saving more by owning a home. Then, they became August 2019. Ultimately, we decided to dip into our emergency fund for a few grand to cover the underage and pay it off in July 2019.
The prepayment penalties were negligible. We paid $454 (3 months’ interest) in penalties and $395 in administrative fees to issue a discharge statement and discharge the mortgage lien from title. That’s $849, which is less than the interest we’d pay out in the second half of 2019 if we decided to keep the mortgage and pay out the term as scheduled. Worth it.
Now we have an extra $500/month from the mortgage we aren’t paying anymore, which can go into savings and retirement funds. We made the conscious choice to pay the house off before funding retirement and now, with the house paid off, we can save close to $70,000/year (outside of any major expense), which will go directly into tax-sheltered funds (RRSPs and TFSAs, because we’re Canadian).
In the end, we established parameters for what we wanted and stuck to them. People tend to diminish living below your means and encourage greater assets and income as the best way to reach financial goals. With us and our mortgage, that just was not true, and with you, it doesn’t necessarily have to be either.
~Calm ‘n Cents