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Living Mortgage Free: Debt-Free for Life

Living Mortgage Free: Debt-Free for Life

In February of this year, my husband, two sons, and I walked into the bank and paid off our mortgage. Then we drove home, ate cupcakes, and celebrated the beginning of our mortgage free life!

I’ve been dreaming about paying off my mortgage from the moment I signed up for it. My dad planted the idea when I was just a kid.

Living Mortgage Free

Did your parents talk about money when you were a child? My dad loved to talk to me about financial matters. When I was small, he taught me how to roll coins and balance a checkbook.

When I got older, he talked to me about his old jobs. There was the time he worked in his dad’s grocery store, his short stint as a security guard, and that year he sold insurance door-to-door.

My dad is a vivid storyteller. He weaves most of his tales with a hearty laugh and a big wide grin, but one financial story makes him beam more than all the others.

“Which story is that,” you ask. The tale of his seven-year mortgage.

Shortly after I was born, my parents moved out of the city. They bought a modest house on a quiet street with a big, wide backyard.

As the ink was drying on their mortgage papers, my dad formulated a money-saving idea. “Why wait thirty years to pay off the mortgage,” he thought. “What if I could do it in a fraction of the time?”

When he came home, he enacted a plan. Any time my parents came across extra money, they would use it to pay down the principal. From that point forward, they sent every raise, bonus, and birthday check directly to the bank.

They accomplished their goal in seven years! Most impressive of all, they paid off the mortgage on a single, middle-class income!

“There is no better feeling than living mortgage free,” he told my brother and I, “nothing provides better peace of mind.”

The Safe Feeling of Owning Your Own Home

My dad loves his family. He is the kind of guy who cooks every holiday dinner and stocks the house with the best groceries when I come to town. He buys my mom flowers once a week and sends text messages to say how much he loves my brother and I.

Living mortgage free released my dad from the hefty financial burden of owning a home. It also settled his worries and brought him peace of mind.

“If anything happened to me, I wanted to know that the bank could never take the house away from your mom,” my dad always says. “I wanted to know that you would be safe here without me.”

Reflecting back, I think my dad told us this story to help us feel safe and secure. He wanted my brother and I to know that we would never have to move unless our family decided to do so.

I’m not sure if my dad intended to impart any wisdom beyond that fact, but in telling this story, he set off a spark in our minds.

Mortgage Free Living

Mortgage free living.

I kept his wisdom in my back pocket when my husband and I signed the paperwork to buy our first house. It was a hot day in August, five days after my twenty-fourth birthday.

A few weeks after signing the paperwork, a thick envelope full of mortgage papers arrived in the mail. I pulled out the stack and began to read, but I couldn’t seem to get past the first page. My eyes kept shifting to the number 30 printed in bold above the words “mortgage term”.

I couldn’t stop staring at that number. Thirty years seemed like a lifetime to me. I wasn’t even thirty years old! To pay off the mortgage, my husband and I would need to write three hundred and sixty checks to the mortgage company! By that time, I would be fifty-four years old.

I didn’t want to wait that long to end the financial burden of owning a house. I kept thinking about my dad’s mortgage pay-off story. How could I pay off that mortgage? How could I be mortgage free and debt free before age forty?

Racing Towards the Goal of Mortgage Free Living

Honestly, I can see why some people never want to own a house. Mortgages are expensive, and property taxes, repairs, insurance, and other assorted costs add up each month.

I felt burdened by that big payment and determined to get rid of it, but I didn’t have the money to make any extra payments. In fact, my husband and I paid PMI on that first mortgage. (That PMI payment is a story for another day!)

So I set my sights on the target of living mortgage free even though I couldn’t do anything about it yet.

Two years later, we got to take our first crack at it. After interest rates fell, we modified our thirty-year mortgage to a fifteen-year. Then we started throwing extra money at the principal.

During that time, we lived like an old married couple rather than two young twenty-somethings. We ate at home, shopped sparingly, and didn’t take any extravagant vacations other than our honeymoon.

Putting Our Plans on Hold

We were making significant progress and forging ahead when I fell in love with a water front property. At that very moment, I knew our plans for mortgage free living would have to wait.

We could have continued our race to pay off the mortgage, but we didn’t. Life is meant to be lived. When I found that little piece of heaven, I knew we should buy it. My husband wholeheartedly agreed.

Some financial goals can keep us locked on a path we don’t like. Those goals might keep us working in a job that makes us miserable. They might force us to work a high-paying job rather than opting for a more simple life.

An early mortgage pay-off may have been the original goal, but in this case, we set it aside for just a little bit.

In fact, rather than paying off our house, we applied for a cash-out refinance on it! Our $237,000 loan ballooned into $400,000 as we used the money from the cash-out to buy the new property outright.

Mortgage Free at Last

We halted overpayments until 2012. When my husband’s hard work helped us pick up the momentum once again. We refinanced our 4.5% fifteen-year mortgage to a ten-year mortgage at 3.125%.

Then I created a mortgage chart and began counting down the months. I kept track of the balance and marked off each payment as soon as we made it.

In February of this year, we walked into the bank with enough cash to become mortgage free for life! We paid off the house eighteen and a half years after purchasing it.

Refinancing our Mortgage

Thanks to rising home values and shrinking interest rates we refinanced our house five times within those eighteen years.

Here is a breakdown of our mortgage terms and interest rates:

  • 2001: $247,000 / 30 years / 6.875%
  • 2002: $243,000 / 30 years / 6.000% (got rid of PMI)
  • 2003: $237,700 / 15 years / 4.875%
  • 2009: $400,000 / 15 years / 4.500% (cash out)
  • 2012: $335,000 / 10 years / 3.125%

When interest rates dropped in 2003, we cut fifteen years off our mortgage and paid roughly the same amount each month.

You can see the big bump in 2009. That’s when we set our initial goal of living mortgage free aside to buy a beach property.

During this period in our lives, I lived and breathed mortgage calculators. As soon as rates dropped, I ran the numbers to see how much more we could save by refinancing.

How to Live Mortgage Free

Does mortgage free living sound like a dream? Would you like to pay off your mortgage early? If you set that goal, let me know, and I’ll cheer you on.

But before you start the quest for a mortgage free life, you might need to do some homework. Here are a few things to check off before you start attacking your mortgage debt:

1. Pay Off All High Credit Card Debt

Mortgage rates are incredibly low right now. If you have credit card debt, you need to pay that off first.

2. Create an Emergency Fund

Make sure you have an adequate emergency fund. Before the pandemic, financial experts thought three to six months was enough. I think you should save even more than that. Don’t pay off your mortgage until you feel safe and secure with a sizable financial cushion.

An emergency fund can cover unexpected job losses. It can also help you take time off to care for a sick spouse, child, or parent.

3. Sign up For Life Insurance

Sign up for life insurance if you have a spouse, partner, or children who will need money in your absence. Paying off your house provides peace of mind, but your family will still need money to pay for food, utilities, and property taxes.

4. Sign up for Long-Term Disability Insurance

After you sign up for life insurance, it’s time to sign up for disability insurance. A thirty-year-old has a 50% chance of being disabled for three months or longer before turning sixty-five. Review your policies at work or buy an individual plan outside of your employer.

5. Fund Your Retirement

If you receive a company match, save at least the minimum amount in your 401k before throwing money at your mortgage. It makes absolutely no sense to turn down that free money. Don’t let the lure of fewer mortgage payments prevent you from receiving your company match.

How to Accelerate Your Mortgage Free Life

How to Accelerate Your Mortgage Free Life.

After you complete the items above, you can begin your quest towards living mortgage free.

1 – Buy a Modest Home

The easiest way to accelerate your mortgage payoff is to buy a modest home. The less you pay upfront, the less you’ll pay over time. My parents saved money by moving us way out into the country. This approach will work for some people, but others will be unable to handle a long commute. I don’t blame them.

2 – Rent out a Room

A second trick is to rent out a room or basement in your house. I live in a college town where a lot of homeowners rent out rooms to college students. If you don’t mind living with renters, this is an easy way to let someone else pay off your mortgage for you.

3 – Buy a Duplex

Buy a duplex. Rent one side and live in the other. Again, you are employing the technique of letting someone else cover your mortgage.

4 – Buy a Tiny Home

If you can simplify your life and live with less you can find a smaller space. This might include downsizing your square footage in a traditional home or moving into a tiny home with much smaller overhead and ongoing costs.

There are many other ways to house hack your way to a mortgage free life, but I’ll let you read about those elsewhere. My husband and I never tried any of these techniques. Instead, we threw bonuses and raises at our mortgage. Then we made all efforts to stop buying other stuff. We minimized our expenses so we could focus on the big one!

The Power of a Debt Free Life

Before I paid off my house, my dad often joked about winning the lottery. “If I win the lottery, I’ll pay off your house and your brother’s too,” my dad used to say.

That speaks to the power of living without a mortgage. Forget spending money on a lavish vacation or a new car.

“Before you can enjoy the rest of the money, you have to free yourself from the financial burden of a mortgage,” he said.

Living Debt Free Without a Mortgage

March came and went this year without a mortgage payment, so has every month since. Living mortgage free feels like a dream. With a ten year mortgage, we used to send thousands of dollars to the bank each month! Life is so much better without that burden.

We are incredibly fortunate to be at this point in our lives. We didn’t beat my dad’s record of seven years, but I’m more than okay with the timeline to pay off!

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Raegan

Saturday 19th of June 2021

Good for you! It’s great living mortgage free. We paid off our mortgage early last year at age 43 and I don’t regret it one bit. The math obviously says to invest instead but owning your own home is priceless! Now I’m in a work-optional position and my husband is planning to retire at 50, God willing. I have no regrets on the path we chose.

Raegan

One Frugal Girl

Thursday 24th of June 2021

Thank you for sharing your story! Paying down the mortgage provides so much flexibility. It was one of the main reasons we focused on dumping our mortgage too!

Zaphod

Tuesday 8th of June 2021

Note from a Ph.D. economist: While the goal of living mortgage free sounds nice (I also harbored such childhood fantasies) - it is a financially unsound decision in today's low-interest rate and higher expected (real) inflation environment for the foreseeable future. The most financially sensible course of action is to have as large a debt as possible on your house that allows the lowest possible interest rate for 30 years, then keep saving your cash in the growing stock market to let compound interest do its long-term magic. Over time, your loan's real worth will shrink due to inflation and your house's as well as your saved stock portfolio's worth will increase.

For my FIRE goal, I plan to save the cash equivalent of paying off my mortgage in a post-tax cash brokerage account AFTER maxing out on pre-tax and post-tax retirement savings - but not ACTUALLY give into the unwise albeit emotionally appealing idea of paying it off.

One Frugal Girl

Wednesday 9th of June 2021

Thank you for your comment. We considered the option you mentioned, but ultimately decided against it. When we made the decision to pay off our home we were in a very different financial situation with a completely different frame of mind. With more money in the bank the urge to live mortgage free is not as strong. I think your solution can be a good one!

Vivian

Monday 7th of June 2021

I feel like we could achieve FI if we didn't live where we do. You can't buy a single family home short of a million dollars and renting a 3bd/2ba is 4-6k/mo. We bought a 2bd/2ba bc that's all we could afford at the time without PMI (not to mention we offered more than the list price to secure the place due to competition). Now we have kids and I really want a bigger place. We could sell but we wouldn't be able to afford a bigger place either. Renting is also way more expensive than our current housing expenses.

It's really frustrating as we are not big spenders. My husband can't leave his job right now so we can't just move somewhere else. Another major issue is the cost of decent childcare is about one mortgage per child. I'm sure we're not the only millennials in this situation. I just feel like you can't have FI and kids these days.

One Frugal Girl

Wednesday 9th of June 2021

Hi Vivian, Thank you for your comment. I agree that millennials are in a much more difficult situation than previous generations. Have you watched Money Explained on Netflix? The episode on student loans provided a great graphic displaying the impossible costs faced by millennials when compared to previous generations. As you mentioned the numbers do not add up in a favorable way for those trying to raise kids and own a home.

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