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Guess what? We paid off our mortgage. That means we have now have no debt. Zip. Zero. Zilch. Nada. Nothing. And do you know what? It feels pretty darn good.
Yes, we’re well aware of the mathematical advantages of keeping your mortgage and investing our extra cash, but we decided to pay off the mortgage for a variety of non-mathematical reasons.
Our mortgage story – in the beginning
We got our first mortgage back in June of 2002. Actually, we got two mortgages back in June of 2002. We didn’t have enough cash on hand to put 20% down, and we wanted to avoid PMI, so we went with an 80/10/10 when we bought our first house.
Our primary mortgage was a 30 year fixed rate around 6.5%, whereas our second had a rate around 8% and was amortized over 30 years, but there was a balloon payment due after 10 years if we still had it.
Anyway, not long after closing on our house, we ended up killing off the second mortgage in favor of a HELOC with a significantly lower rate. Over time, we rebuilt our savings and eventually plugged it into our HELOC to kill of the balance.
Nowadays, I probably wouldn’t recommend this strategy… We essentially rolled our emergency fund into the HELOC to save on interest. It worked well, but the credit markets are now much dicier than they used to be, and there’s always the risk that your HELOC might get shut down.
Anyway, we ultimately rebuilt our savings without ever having to tap the HELOC, and thus all that was left was our primary mortgage. Throughout this time, we were also consistently paying at least a little extra toward principal.
At the same time, mortgage rates had been falling and we decided to refinance to a lower rate. Once again, we opted for a 30 year loan, but our rate dropped into the mid 5% range. The breakeven period was about a year, so it seemed like a no-brainer at the time. We ended up keeping that mortgage for around two years, so we ultimately came out ahead.
Our mortgage story – movin’ on up
In 2006, we ended up moving to another state. We made a tidy profit on our first house when we sold and… Though we ended up moving to a larger, more expensive home, we were able to put down 50% this time around. Unfortunately, rates had drifted back up at this point, so we wound up with a rate a bit over 6%.
As before, we continued making extra principal payments every month, so the balance was spiraling downward. About 18 months later, rates dropped dramatically and we decided to refinance once again. This time, however, we went with a 15 year fixed rate mortgage at a bit under 5%.
This time around, we had minimal closing costs. Thus, even though we ended up paying the whole thing off about 18 months later, we still came out ahead.
Our mortgage story – paying it off
Okay, as I noted above, we’d been consistently making extra principal payments. Over time, these prepayments got more and more aggressive, so our balance was dropping fast. At the same time, we had also been saving and investing aggressively, fueled not only by my day job, but also by my online endeavors.
Fast forward to this past December. After giving it a lot of thought, my wife and I decided to request a payoff statement from our lender and to make a lump sum payment to payoff our mortgage early. After transferring some money around, I headed over to the bank to wire the funds to our lender.
And that’s all she wrote… The funds arrived later in the day, and our mortgage account was updated the next day to reflect our zero balance. From start to finish, this entire process took just about 7.5 years. This isn’t to say that you should pay off your mortgage early, but rather to provide evidence that it can be done if you decide that it’s the right course of action for you.
P.S. Hey Matt, our debt-to-income ratio is zero. 🙂
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