Today, I have a great article from a reader, Rob from Mustard Seed Money. Rob was able to pay off his $400,000 mortgage in just 7.5 years, all before he was 32 years old. Below is his story, enjoy!
I was one of those weird kids that couldn’t wait to graduate from college. I’ve always had a long-term focus and viewed college as a stepping stone. One day during my freshman year, I remember walking to class with a friend saying that I couldn’t wait to graduate and start making some money.
My friend turned to me with an incredulous look and confessed he planned to live it up while he could.
Needless to say, I probably didn’t enjoy college as much as others did.
I had too strong of a focus on life after college to ensure that I'd reach the life goals that I had set up for myself. I wanted to obtain a good job, get married, buy a house and fill it up with some kiddos.
Of course, what actually ended up happening did not follow the order that I had envisioned. But, I can honestly say I love the way things turned out.
I graduated from college in three years and right after the dotcom bubble burst. As I’m sure you know, there weren’t a ton of jobs floating around at the time. But I obtained one at an insurance company and was making a decent salary.
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My Gracious Parents
Fortunately, I was able to live at home with my parents. Even better, they didn’t charge me rent. I convinced them that if I lived at home that I could take the money that I would have paid towards rent and apply it towards the down payment for a house.
They agreed that this was a good plan. I started to save up money as quickly as possible. Within two years, I was able to accumulate $80,000 for a down payment and started to look for houses in my price range.
I quickly learned that the housing market had exploded since I went to college. My parents’ house, which they had bought five years earlier, was now worth three times what they had paid. There I thought I had a great, sizeable down payment to put into a luxury home, and then reality hit me.
An Overwhelming Mortgage
It took me about a year from the time I started looking to find an amazing townhouse. It was brand-new, so there would be very little maintenance. Plus, the HOA would the upkeep of the exterior of the home, which meant that I wouldn’t have to do any sort of yard work. As a 23-year-old kid with other priorities, this sounded amazing.
So they loaned a 23-year-old $400,000, who barely made 10% of that.
Keep in mind, this was the early 2000s.
The downside to this amazing townhouse was that the only way that I could afford it would be if I brought in a roommate. As an introvert, I was both terrified and excited. In one sense, I would essentially have built-in friends to hang out with. On the other hand, I would become an instant landlord and would have increased responsibility as a result.
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My Mom's Advice
My Mom assured me that by adding a couple extra roommates, I would be that much closer to paying off my home quickly. They were able to pay off their home in 5 years, so I had some great inspiration to look to.
Initially, I was skeptical. A lot of the experts say that you should never pay down your house. They tout mortgage interest as a tax deduction and that the difference can be invested. As a finance major in college, I knew how important it was to invest in the stock market early in order to benefit from compounding interest.
If there is anything that I remember from a college course, it’s when one of my professors said, “Time in the market is more important than timing the market.” With all that great advice, I’m sure you know what I did.
I ignored the experts and listened to my mom, like any good son would.
Plus, I hated the thought of debt holding me down. In my home growing up, debt was considered taboo, and I have also always been risk-averse. While I didn’t anticipate exactly how debt would trap me, I did know that if I didn’t address it, that I would be regretful in the future.
So adhering to my Mom’s advice, I began pursuing potential roommates. I approached a co-worker as well as some friends from college. They eagerly jumped on board (the rent was very reasonable), and I had the house full even before I bought it. So I was all set, or so I thought.
Since I had never lived with these guys before, I had no idea of their eating/sleeping/cleaning habits. Quickly, I found out that we needed a housekeeper desperately. Four guys living in one house with nobody volunteering to vacuum or clean created a mess.
Sure, it may have been normal to have empty Doritos bags strewn all over the floor and a video game looping in the background in a college dorm. But this was no longer going to suffice. I now owned the property and was proud of that accomplishment.
Needless to say, we didn’t entertain any ladies for the first few months until we hired a maid. But after that, it was smooth sailing. Everyone under my roof was appreciative of her cleaning services every other week.
During the first few years of having roommates, I really enjoyed it, much more so than my experiences in college. It also helped that the guys were paying me every month to live there. Plus, the super low rent kept them content and staying there.
Chipping Away at my Mortgage
In the meantime, I was receiving enough from the guys’ contributions that I was making a dent in my mortgage debt. I created my own loan amortization schedule. At work, I would play around with the spreadsheet to see how rapidly I could pay off my debt.
I became obsessed. I’d run all these different scenarios, incorporating extra principal payments and their effects on my outstanding mortgage balance. I couldn’t wait for raises and bonuses as I had planned to put any excess money towards my mortgage. Any shaving of a month or two off the duration of my loan was a win in my book.
I figured out that I could pay off my 15-year mortgage in as little of 7.5 years if I diligently kept pouring money into the mortgage. However, admittedly, after a couple of years of doing so, I started to get a little burned out.
Eyes on the Prize
The roommates weren’t getting along nearly as well as they had in the past. Between their bickering and my introversion, the situation felt less than enjoyable at times. Everyday though, I would have to remind myself to keep my eyes on the goal, which was being debt-free.
I wrote down all the things that I would do when I became debt-free. I would travel to Europe without any worries. Because I wouldn’t be dependent on the paycheck, I would take more chances at work life. In the future, my spouse wouldn’t have to take on an anchor of debt, and she could focus on her passions instead of having to support a massive mortgage that I had unwisely taken out.
Looking back, I honestly have no idea how I did it.
It definitely wasn’t always peaches and cream living with roommates. There were times when my roommates (grown men) would throw Haymakers at each other while they were drunk. There were times when they would wrestle, and I thought I would have to patch up holes in my wall (thankfully they actually never caused any damage). But, I am so glad that I endured those uncomfortable moments. While at times, it may not have been enjoyable, I’m able to look back now and get a good laugh at some of my roommate's antics. I love to tease my former roommates with these memories as now many of them are married with kids. Oh, how a little maturity can go a long way!
Though it felt like an eternity at times, I finally paid off my mortgage in 7.5 years.
I had proposed to my wife, and we planned to have our wedding at the end of September. My last roommate also was planning to be married, but in early September. So he moved out, I took his final rent payment, and I paid off my house. This meant that when my wife and I married, my wife moved into a debt-free home.
As a celebration, we went to Europe the following spring. I soaked it all in, from exploring Norway, where my family descended from, to visiting Spain to see a close friend. All were incredible memories that I will never forget. But the best part of it all was seeing Europe debt-free. This was definitely the way to do it. I highly recommend being able to plan the trip of a lifetime without having to worry about expenses. It makes for a much more enjoyable experience.
A New Job
Shortly after I returned from the trip, an opportunity presented itself at work to take a huge leap that was outside of my comfort zone. If I still had the mortgage, I would not have taken the job because I would have been afraid of failing and potentially losing my job.
The boss didn’t have the best reputation, and the office had some morale problems. Typically, I would look at those situations and think, “No way do I want to take a role like this where there is a 99% chance that I will fail.”
So, why did I take it? I loved the work that was being done in the office. I knew that if we could institute a couple of tweaks, that we could turn this office into a high performing machine.
Without a mortgage, I felt able to dive into this new role. Here’s the crazy part– I crushed it. I had no fear, so I implemented changes to the job that I thought were necessary. Even crazier, I received a promotion and found myself in more roles that were out of my comfort zone. My career trajectory has completely changed, all because I paid off my mortgage and in return became fearless.
Flexibility for My Wife
Paying off my mortgage turned out to be a huge blessing in an unexpected way. My wife’s familial situation had led her to become a full-time caregiver for her special needs sister. If we still had our mortgage, it would be much harder for us financially to have my wife stay at home to care for both her sister and our son.
While it’s not always easy being a stay-at-home caregiver, my wife loves the flexibility that has resulted from not having a mortgage.
We have friends that have told us their wives would stay at home too if they did not have mortgages. After hearing that, my wife always thanks me for the sacrifices that I made along the way, and in turn I thank my mom for encouraging me to do it.
Missed Stock Market Gains
Finally, there is the issue of how much I could have made in the stock market instead of paying into my mortgage. Well, I recently recalculated the returns that I would have received if invested in S&P 500. I would have made 3.6% with dividends.
In comparison, my mortgage rate, including the tax benefits, would have yielded 3.5%. So while the market beat paying off my mortgage by 0.1%, it wasn’t worth the difference to me when you take risk into account as well.
So I believe my extreme long-term focus has paid off. We are currently reaping the benefits. The sacrifices I made over the years have resulted in a better lifestyle for my family. I definitely recommend paying off one's mortgage if you want to experience greater financial freedom.
Michelle's note: If you'd like to read more from Rob, please head over to his website Mustard Seed Money.
Are you trying to pay off your mortgage early? Why or why not?
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