Sunday, June 9, 2013

T Minus 5 and Counting!

I've been working on paying off my mortgage for some time now. I wish I'd started sooner because I would have made more progress with less work, but alas... better late than never!


For anyone who doesn't know this about mortgages, when you first start to pay it off, the vast majority of your payment goes toward interest, and only a tiny percentage goes toward principal reduction.


But with each payment that you make, the percentages shift ever so slightly so you're paying off more and more principal as you go.

To make it even more complicated, the number of payments you have left is calculated by the amount of remaining principal, so if you make extra principal payments at the beginning of a mortgage, you can really take a huge bite out of the length of the loan with very small extra principal payments.

I'm not sure I did a great job of explaining that, but suffice it to say that I could have gotten here quicker if I'd  started sooner. But I guess that's the case with all things.


Anyhow, that's my circuitous introduction to my announcement that I only have 5 payments left to make on my mortgage. Woo Hoo!


Of course, my mortgage was never that big to begin with. When I bought my house, I spent over a year looking. I didn't have much money (I was only making about $14k/year at the time) which meant that qualifying for a loan was gonna be a challenge.

Fortunately, there were two wonderful women taking lessons at the music school where I worked who helped me out. One was a realtor and the other a loan broker, so with their help, and the gift of a down payment from my parents I ended up settling in a working class neighborhood on the west side of Denver.


Anyhow, I bought my house in 1995 for $63K and with the big down payment my loan was only $50K to begin with. Still, it was a big deal when I first moved in. I went from paying $285/month rent - which included utilities, to around $650/month all told (principal, interest, insurance, taxes & utilities.)

Interest rates were 9% back then - my how times have changed! I refinanced once to 6.25%, and thought about trying to refinance again when the rates really fell, but by that point the loan was so small that nobody would touch it.


So at that point I got really aggressive about paying it off by making extra principal payments each month as well as cashing in a few CDs to make some big lump sum principal payments. I figured there was no point keeping my money in CDs that were earning less than one percent interest when it could go toward paying off a 6.25% interest loan!


My parents, who hate debt even more than I do, got into the act, and for the past few years they've given me money to help pay it down further in lieu of Christmas and birthday presents.

I'll still have to pay taxes, insurance and utilities, but all told I'll be saving about $450/month.


I'm not sure what I'll do with the extra cash... probably just replenish my savings accounts for the moment. But it sure feels nice to know that very soon I'll have one less albatross hanging around my neck!


43 comments :

  1. Woo hoo! That's very exciting. My parents have just paid off their mortgage...although it probably took a good few more years than it took you!

    Can't get over how cheap houses are in the US..(although I imagine prices have risen a bit since 1995!)

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    1. Well, I live in a very poor area, so houses are much cheaper here than in other neighborhoods. Plus I got a great deal because the seller really wanted to sell quickly. These day's houses in my neighborhood are selling for around $140k, so I'm really glad that I bought when I did, because I don't think I could afford this house if I had to buy it today.

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    2. Just had a look at house prices across the country, and you an buy somewhere for the equivalent of 140K here...just not in the south east. Anything for that much is in Birmingham, Manchester or Liverpool. I knew there was a difference in house prices between north and south, but I'd not realised quite how much! So I'm probably looking at house prices with my southerner's idea of price...I don't wan to swap where I live, but would love some northern house pricing!!

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    3. Well, I have no idea where any of those places are, but I think there's a huge difference in housing prices in different parts of the US too. I don't think you could even buy a garage for $140K anywhere near New York City!

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    4. Hehe maybe I need to do a post on my part of the world :)

      I do have to look at maps of where various US states are when reading blog posts...I'm learning loads!

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    5. I, for one, would LOVE such a post! I'm completely ignorant when it comes to the British Isles!

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    6. I've been thinking of doing one for my county (Suffolk) which is not particularly large, but I think trying to encompass the whole of the UK would be a vast undertaking!
      Plus, I've only ever lived in my home town and the city where I went to uni (how boring!)....perhaps my uni city can make a guest appearance!

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    7. Ahhhh... so Suffolk is a county! I've always wondered about that. Do you have states in the UK? I'm just totally ignorant about it all... I don't even know where the countries are! I know there's England, Ireland, Scotland & Wales (those are all separate countries, aren't they?) - but if you gave me an unmarked map and asked me to draw in the borders it would be a guessing game at best! I probably should know more about it since many of my ancestors on my mother's side came from the British Isles.

      Anyhow, I'd LOVE to read a blog post about Suffolk!

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    8. Well, my grandad was half American and I don't think that I could draw many US states on a map...so clearly ancestry doens't help geographical knowledge!

      Assuming you have a vague idea of the general shape of the British Isles... Ireland is the separate island to the left/west.It's made up of Ireland and Northern Ireland...which are two separate countries- Northern Ireland is part of the UK, Ireland is not. There has been conflict in Ireland for centuries (which I won't attempt to explain, a) because it would be an essay and b) I am not sure I understand fully!)

      Wales is the sticky out bit to the west of the mainland; Scotland is basically the northern third of the mainland; England is the rest. They are all separate countries...sort of. The Queen is head of state for all of them (and Northern Ireland) and they are governed by Parliament in London. But Wales and Scotland have recently got their own parliament/assembly, which does some of the governing.
      So what I am saying is that it is complicated :)

      We don't have states- counties are administrative areas with county councils which are responsible for things like collecting rubbish and recycling. They are pretty ancient though- the geographical area of Suffolk is apparently based on a 5th century kingdom...

      I should probably write that blog post!!

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    9. Holy Moly! No wonder I'm confused! I'm looking forward to that blog post! :-)

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    10. We don't like to keep things simple :)

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  2. That's exciting! You made some really good decisions along the way. - from Dar

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    1. Well... my decisions probably could have been better, but they were "good enough" decisions anyway!

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  3. Great job! 5 months will fly by, and your home will be all yours, free and clear by Christmas.

    We're in the same position with regards to what we could buy, if we were new to the real estate market right now. I'm thankful that we bought when we did, even though money was very tight those first couple of years. Don't you wonder how your neighbors can even buy into your neighborhood?

    When we bought our house, we had read that the earlier you make extra payments towards the principal, the more gain you see in the long run. So, that's what we did. At the end of the first year, we took 75% of everything that was surplus in our budget and put that towards the principal. The other 25% went into savings. And I think it did make a difference. We didn't quite meet our goal of paying the house off in 10 years, but we did okay, paid it in 14 years. We did have a couple of years when we just didn't have any surplus money to put towards principal. Some years are like that. But when we could, we did.

    I don't know if this is still something that matters, but when we were pre-paying our loan, we were told to make sure to designate the extra payment to principal only, otherwise the bank would apply it to interest.

    It's helpful for motivation to go online and look up a mortgage calculator to run different scenarios (if I prepay an extra $25/mo, how much time will I shave off my mortgage). This really helped motivate us to cut back on non-essentials for a couple of years, to just get the house paid.

    Again, good job!

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    1. Wow! Sounds like you guys did everything right! I think you're correct, you have to designate it as principal reduction or they will just apply it to interest. I have my payments automatically taken out of my checking account, so I only had to set it up once.

      Oh, and those mortgage calculators are wonderful motivators aren't they? I feel soooo lucky to be here, because there's no way I could afford to buy these days!

      Now the only people I'll owe is my parents... even though they don't want repayment of the money - I'll still feel indebted to them forever, but I guess that's how it's supposed to work. :-)

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  4. congratulations!!

    I need to find you to the photo of a mortgage ad I saw while I was living in Spain. It said that the other banks usually offered three types of mortgages: 1. The 'Mooon' mortgage: it always had a hidden side. 2. The 'Onion' mortgage: every time you look at it you start to cry. 3. The 'Cat' mortgage: You'll need nine lives to repay it.

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    1. Ha! I LOVE it! I know sooo many people who got burned with all of the crazy mortgage schemes out there, adjustable rate & interest only stuff. I'm really glad that I stuck it out with a boring old fixed rate mortgage!

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  5. So exciting!

    My story is very similar:
    * I was making under 20K (but way more than 14K--what? richer than a personal finance blogger?!!)
    * I bought my house in 1996 for 61.5K--it was in a marginal part of town (between a bad neighborhood and an airport) and small (960 square feet), so it was half the median price of houses in my city even though it's pretty centrally located.
    * I had 5K for a down payment, but it turns out almost all of that went to closing costs--only a couple hundred went toward the down payment. I had a program for first-time buyers where you didn't need a real down payment.
    * My payments went from a rent of $600 + utilities for a 2/1 to $620 + utilities (twice as high) + maintenance, also for a 2/1. I had a roommate in both places. For the house, I charged her $310 and then paid for all the maintenance myself. And I've always done that.
    * My interest was 8.25%; and I got an amortization chart so I could see that I was paying off only about $30/month.
    * I started making extra payments of $100/month, excited to be cutting off three months from the end of my mortgage with every payment.
    * After two years, I refinanced to a 15-year mortgage at 6.625% (and a much smaller mortgage insurance payment). With minimum payments it would still be paid off before my pension kicked in. At that point, I quit making extra payments and put my extra money into my retirement fund because stocks usually average 8-11% (back then everyone was saying 11%). Ah, well, guessed wrong!
    * At the very end, I started using savings to pre-pay; then I used my extra money to re-fund my savings.
    * When I bought my house, it cost just over 3 times my salary. Now it's supposedly worth 160K, about 4 times my salary (for the last year that I had a full-time permanent job), so I also could not afford to buy it as easily now as back then. In my case, they moved the airport and are turning that land into a posh walkable area. The other side is still a scary part of town.
    * Taxes and insurance and the amount I save for maintenance still add up to about $600, but that's $505 less than when I had a payment. 2/1 rentals do cost more than my paid-off house, but not much more. (I'm in a high-property-tax state because we have no income tax.) I figure if taxes get too high to be able to afford, that's because my house is worth a lot, so I could sell it and move someplace cheaper.

    I always thought I'd marry some richer guy (I hang around programmers and engineers) and he'd want to live someplace bigger and better, so I'd keep my house and rent it out to students. But my current boyfriend of 13 years is not that rich and he loves the location. Occasionally when I think we might break up I look at all the single guys I know, and they all own big, pricy houses out in the middle of nowhere. I actually like my house better! A smaller house is cheaper to air condition, re-roof, etc. Though my current boyfriend wants to expand it because he has loads of stuff.

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    1. OK... I'm totally laughing at the idea that anyone might consider me a "personal finance" blogger! I guess I just never thought of myself that way!

      Anyhow, sounds like you made a great choice with your house... and you lucked out with the airport thing!

      I'm totally with you on the big house in the middle of nowhere thing. I mean some part of me likes the idea of the privacy and luxury, but the reality is it would probably just be a big pile of work! CatMan and I were riding through one of the fancy sections of town the other day - where they have enormous manicured lawns, no sidewalks, and you never, EVER see anybody outside except for the maintenance people. We were trying to guess the square footage of some of the houses, and all I could think was that the utilities alone for a place like that would probably cost more than my entire mortgage!

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    2. Admittedly, you are so much more than a personal finance blogger. Still, it's rare that I get new ideas from other people anymore, but I've gotten a few from you, so you're a PF blogger to me! (I got $1 frozen berries at Dollar Tree for post-wisdom-tooth-removal smoothies because of you, for example. Yes, even though they weren't organic.)

      I feel a little lucky with the airport--I love the new hiking trail and I like the Home Depot, though I do miss being able to walk home from the airport sometimes. I was luckier when the walkable Montgomery Wards was turned into a Target. Score!

      My sister and I went on tours of huge, pricy houses once. None of them had big bedrooms (except the master bedroom)--just more bedrooms. They didn't have bigger laundry rooms, either (you'd think you could leave out an ironing board 24/7 in a gigantic house, but no, not in the laundry room). And their living rooms weren't any bigger than mine. Our favorite was one with something like seven different dining rooms. Crazy! Oh, and the walls aren't any more plumb than in affordable houses, either!

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    3. Ha! Now if it were me, I'd have a HUGE laundry room with tables for folding things, and plenty of space for everything! Of course, I refuse to iron, so the ironing board part wouldn't be helpful. :-)

      The Boys & Girls club were auctioning off a mansion to raise funds a while back, and there was a virtual online tour. The thing was just filled with all of these "single use" rooms like libraries, billiard rooms & wine cellars that I just couldn't imagine most people ever using!

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    4. Sounds more creative than the ones we saw. We also saw ones with multiple kitchens (the big one, the mother-in-law suite one, the outdoor shaded one, the sunny outdoor one, etc.) And multiple living rooms (the big one, the fancy parlour, the kids' play room, the TV room, etc.) At least yours didn't have the same room over and over!

      I'd also want a big laundry room (unstacked washer and dryer, drying racks, hanging racks, ironing board, and the boyfriend wants a laundry sink for soaking things). It could also be the mudroom, with room for muddy stuff, towels hanging, backpack/coat/hat storage, sitting down to change your shoes, etc.

      I'd also want a huge living room (for dancing or multiple dining room tables or big projects). Also, lined with bookshelves.

      The bedrooms could all be pretty small, but I don't need a million of them. I might make the master bedroom into the office with two desks and lots of storage and work space. Then use the second biggest bedroom for us and have a spare bedroom for guests.

      And the kitchen should not be gigantic with an island in the middle, but it should have a big pantry with lots of easily accessible shelves (not under a staircase with a normal door, for example).

      I want a little breakfast nook, no formal dining room. I'd put dining tables in the living room for big dinner parties.

      The garage should be huge (for cars and carpentry projects) with a huge carport in front of it for back-up parking during projects or parties).

      Because it's so hot here, I'm not really a fan of porches, yards, gardens, or any of that cool outdoor stuff (though I did admire a friend's yard with room for a volleyball game, a pool, and a greenhouse). I mostly like the outdoors because it means not sharing walls with annoying neighbors (the kind who vibrate the whole structure with their parties until the wee hours and the kind who complain about the noise when I tiptoe around in my socks).

      I guess the ideal house would also have cool stuff in it: a safe room (in case of tornadoes or bad guys), secret passageways, and perhaps a revolving bookcase, batpole, and, to capture bad guys, a trap door.

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    5. Holy Moly! I think perhaps when you win the lottery you should have your dream house built. It sounds wonderful! I especially like the revolving bookcase and secret passageways... I'm having visions of Young Frankenstein. "Do NOT put the candle back!"

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    6. Well, of course now that I am a grown-up, I have been brainwashed, ahem, I now also think of practical matters. So I don't play the lottery (though if my mom wins, she wants to let all of us kids share in her bounty). And I am daunted by the fact that revolving bookcases require two adjacent rooms to need bookcases and to have the floorspace available for revolving and then you also lose your flexibility in arranging those rooms. Trap doors and bat poles are dangerous. I do kind of want to open a doorway between two adjacent closets, though. A bad guy can think you're hiding in one closet that s/he saw you jump into, but then you've gone to the other closet, into the bedroom and are making your getaway out the bedroom window. Or if we just take down that wall altogether, then we'd have semi-easy access to things in one closet from the other.

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    7. Holy Moly! You totally crack me up! I can't believe you've thought through this stuff so completely!

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  6. Wow! That's impressive! Our house, sadly, has substantially decreased in value. When the economy tanked in the past few years, so did home values in our area. Boo. I don't see us ever moving unless we absolutely need to, because we would take a major hit on our house (I'm hoping eventually that the housing rates will rebound). But ... we're in a decent area, we have a good roof over our heads and food on the table and clothing on our backs. So much to be grateful for.

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    1. I got really lucky and bought just before the big housing bubble. Within 2 years of buying my house, it appraised for $180k! That's like triple the price I paid! Of course, that was before the crash - it's worth less now. But I feel very lucky to have bought when I did!

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  7. Yay! Awesome :) It may have taken a little longer than you wanted, but it's still a great accomplishment!

    We only bought our house 3 years ago, so we still have a ways to go on our mortgage, but I do love seeing the balance go down each month!

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    1. I remember when owning a house was still this big new thing... it was almost impossible to imagine a time when I'd have it paid off. Time sure flew!

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  8. Congratulations, Cat, that must feel so good knowing you will now own your home outright.

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    1. It will be really nice. It will also be nice to get out of the whole banking/mortgage system. Just today I got a letter from the mortgage company telling me that they're raising my payments by $25/month for escrow to cover rising insurance and property taxes. That all makes sense, except that even without making any more extra principal payments the mortgage will be totally paid off before the next tax or insurance payment comes due. So why are they even collecting escrow payments at all? Seems like they're just gonna have to refund them to me.

      It all made me a tad bit nervous... I'm having terrible visions of them continuing to make automatic withdrawals each month even after the thing is paid off! I think perhaps I've heard one too many horror stories about banks foreclosing on the wrong property and the like, but I am just SOOO eager to free myself from the whole deal!

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    2. Hey Cat, a month before that final payment is made, you may want to check with your lender to see if the balance in your escrow account can just be applied to your final payment. Lenders have up to 30 days to refund your escrow balance, after final payment on the loan is made. And they usually take all those 30 days. If you have enough in escrow to cover a complete payment, you could have your loan paid off a month early.

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    3. Hi Lili - I've been thinking about doing something like that... I'm just a little bit nervous about doing anything out of the ordinary that might cause their system to get all messed up. I'll probably call them and talk about it.

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    4. I was afraid, too. I got one of those final payment estimates and was assured that they would stop automatically removing money from my account once I made that final payment. I kept enough money in my checking account, just in case, but they were right.

      The only weird thing was that all online evidence of my mortgage disappeared, so I recommended keeping track of your escrow balance, just in case. I just had to trust them on that part. (An old credit card account stayed online forever, until I asked them to remove it.)

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    5. Hey Debbie,
      Thanks for the head's up! I'll be sure to print everything out before the loan ends just so I'll have it for my records!

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  9. Congrats! I'm right behind you. Mine will be paid off in February next year, that leaves me with (hang on I'm counting)... 8 payments. Whoo-hoo!

    I have a little secret. My husband thinks we still have another 10 years after that to go before it's paid off. It's not that I'm trying to hide things from him, it's just that money burns a hole in his pocket. If it's there, he will spend it. He is a live for today kind of guy. After payoff my "mortgage" money will go into a secret savings for our retirement.

    Your situation sounds very much like mine was. We bought in 94 just before the big real estate boom. Our home was actually worth more than 5 times what we paid for it 10 years later. We almost sold then and headed for the mountains in North Carolina where we could have bought super cheap and banked the rest - but I was caring for my mother and aunt at the time, it was my daughters senior year of high school, and things just got too complicated.

    At the time I thought real estate would just continue to rise so I wasn't in any hurry. Little did I know it would soon crash. Luckily, at this point my home is still valued at about double what I paid, and would probably actually sell a good amount higher than it's value just because of it's proximity to the beach and the upgrades we've done. Besides that real estate here is back on the rise and fast. My home has been increasing in value these last few months by at least $1000 a month according to Zillow.

    Here's to paid off homes *cheers* :)

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    1. OMG! I can't believe you've been able to keep that info from your husband! I totally understand though. Perhaps there is some benefit to being the one in charge of paying the bills!

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    2. It hasn't been difficult to keep my lips sealed all these years knowing how he is with money. I've always thought of it as a huge surprise to give him once I had accomplished the payoff.

      Now that it's close to the end I constantly have to stop myself from telling him. It's definitely something that should be celebrated!

      I'm going to try my hardest not to say anything until I can build our retirement nest egg - I will have a small pension coming at retirement but he won't. We will definitely have to have something to supplement. If I tell him now, I can kiss the nest egg goodbye!

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    3. "Don't say Nest! Don't say Egg!" Did you ever see "Lost in America"? :-)

      http://movieclips.com/VNepo-lost-in-america-movie-the-nest-egg-principle/

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  10. Congratulations (almost!).

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  11. Congratulations - I can imagine it will be great not to have to worry about mortgage with your fluctuating income :)

    I'm another one who can't believe how cheap houses are in the US. Here in Brisbane you can't really get a house for less than $300000. I think it's because our population is a lot more concentrated in large cities here in Australia, so everyone wants to live there, driving the prices up. Plus we have a higher cost of living in general, and higher wages (my scholarship is over $20000 a year and that is a very low income!).

    So if I end up buying by myself (instead of with a significant other) I will probably buy an apartment before I buy a house.

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    1. Well, the average cost of a 2 bedroom house here in Denver is $250K, and $20K would be considered a very low income here too. I'm just operating on a fairly extreme level when it comes to frugality and wages. I'm not saying that things aren't more expensive there - I'm sure they are, I'm just saying that I'm not exactly representative of what's "average" here in the US!

      I think you'd be hard pressed to find a studio apartment here for what I pay in mortgage costs! I bought my house right before the big housing boom, and I also shopped around for several years and got a house that was priced WAY below market because it had a number of problems (like numerous holes in various walls, a non-functioning furnace, and a sliding glass door that opened onto a 10 foot drop because the deck had fallen down.) Living in an immigrant neighborhood where most of the people don't speak english also helps! :-)

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