You’ve probably heard the argument that if you borrowed really cheap money to buy a home, you should just pay on your house note as agreed and not rush things by struggling to pay it off too soon.
Money expert Clark Howard himself has argued that you should consider just paying as agreed on your mortgage if you have a really low-interest rate — perhaps one that starts with a “2 or 3.”
Unfortunately, my mortgage is nowhere near that cheap. It started at 6.25% in 2007 and was written down to 4.125% about three years later by Wells Fargo when they got in trouble during the mortgage meltdown of last decade.
I didn’t even have to pay for an appraisal to get the write-down. It just fell right into my lap. I simply submitted some documents at the time and magically got a new lower interest rate for the life of the loan.
But 4.25%, while I’m grateful for the lower rate, isn’t necessarily cheap money. That’s why I’ve made the decision to pay off my mortgage early.
Using a mortgage principal countdown for inspiration
I’m not going to debate the merits of paying off a mortgage relative to other financial goals in this article. If you want to delve into that discussion, see this article: Does paying off your mortgage make sense under the new tax law?
I’m a believer in going down this road and this is my last debt to tackle en route to becoming completely debt-free, which should happen in three years — shortly after I turn 46. This is coming from someone who had student loans, a car loan and got into substantial credit card debt during the earliest years of my children’s lives.
But because I’ve paid off all those debts and have done a decent job saving for retirement, I feel like I’ve finally earned the right to pay off my mortgage.
Here’s my current balance, which I’m aiming to tackle over the next 36 months. Some of my fellow staffers have paid off their mortgage in as little as two years, but I’m convinced three years is the right time horizon for my life.
Of course, I have no illusions that this will be easy. After all, I’ll have to pay a minimum of $2,400 in extra principal each month to do it in 36 months. That’s over and above my monthly mortgage payment of $900.
Still, I’m convinced the short-term buckling down will be worth it in the end. I don’t intend to buy another home or move from the one I’m in now. I live in a 1,386 square foot townhome with two elementary school-aged kids. My wife passed away last year after a yearlong terminal illness.
Many other people would consider my home a “starter home,” but I prefer to think of it as my family’s “forever home.”
Even once I’m mortgage-free, there will still be housing expenses I’ll have to pay. For example, there’s a monthly HOA maintenance fee of $120 that I can’t pay my way out of. In fact, that monthly bill will only go up from here as the community ages. But the $120 covers the termite bond, my municipal water bill (which we pay collectively as an HOA) and weekly landscaping services.
Fortunately, there are no amenities here in the way of a pool, tennis court or playground, so that should hold down the HOA fee a bit through the years.
Beyond that, I will still have to pay property taxes and the costs of periodic upkeep on my home. On that latter point, most of the major systems have been updated since we bought this home 11 years ago and there’s a brand-new roof on the townhome installed earlier in 2018. Plus, I’ve become proficient at appealing my property taxes when I think they’re out of line.
So, I guess it all comes down to a conscious choice about money. I’ve made my decision to pay off my mortgage in 36 months and now I’m seeing it through.
One thing that I’ve found to be really helpful is tracking my principal payments and the running payoff balance on a cork board I bought at Aldi many months ago. When the going gets tough, the visual effect of being able to look back and see the payoff balance dropping week by week keeps me on the straight and narrow.
Paying attention to the little things
If you look closely, you can see that I use old cereal boxes and other food packaging as the scrap paper I write the balance on. Some people have asked me why I do this instead of using a neat and trim piece of copier paper.
In answering them, I cite a wonderful anecdote I recently came across a few months back when I read Edwin LeFevre’s Reminiscences of a Stock Operator. In case you’re not familiar with this book, it was like The Big Short of its time.
It’s a classic text that details a stock trader’s rise from being a quotation board boy in the days before widespread use of stock tickers to being a millionaire who made some of his biggest profits when the market was tanking — by betting against the stock market on margin using a technique called “short selling.”
In it, the author details speaking with a fellow investor who is referred to only as “the Pennsylvania Dutchman.” This character relays a most interesting story to the author.
It seems that the Pennsylvania Dutchman caught wind of a rumor on Wall Street that a company he was heavily invested in — the Atchison, Topeka and Santa Fe Railway — was in grave peril because of the spendthrift ways of management.
So the Pennsylvania Dutchman took a train up to visit the Boston-based company and see with his own eyes what was going on. He was met by the company president who welcomed him in and tried to convince him at great length that the company was making great strides in becoming economical in all its operations.
This the president did by scratching down convincing figures that detailed the company’s exact financial standing — all written on “fine heavy linen paper with beautifully engraved letterheads in two colors…[which] was not only very expensive but worse it was unnecessarily expensive,” the Pennsylvania Dutchman observes.
Worse yet, the president would scratch out a few figures for show and then he’d crumble the fancy paper up and throw it in the wastebasket. He did this several times during his conversation with the Pennsylvania Dutchman.
Well, that told the Pennsylvania Dutchman all he needed to know. If the president couldn’t be thrifty in small matters, how would he be financially prudent in great matters?
So the Pennsylvania Dutchman sold out all his positions in this company and reinvested the money in another rail company, the Delaware, Lackawanna & Western Railroad. He picked the DL&W because he was impressed by the latter railroad company’s president after a personal meeting with him:
“When I walked in I saw the old man was busy. I thought at first that he was opening his mail, but after I got inside close to the desk I saw what he was doing. I learned afterwards that it was his daily custom to do it. After the mail was sorted and opened, instead of throwing away the empty envelopes he had them gathered up and taken to his office. In his leisure moments he would rip the envelope all around. That gave him two bits of paper, each with one clean blank side. He would pile these up and then he would have them distributed about, to be used in lieu of scratch pads for such figuring as [the other railroad’s president] had done for me on engraved notepaper. No waste of empty envelopes and no waste of the president’s idle moments. Everything utilised.”
– Reminiscences of a Stock Operator
The Pennsylvania Dutchman goes on to note that his intuition to sell Atchison and buy DL&W Railroad based on the observable financial habits of the respective presidents was a wise one. DL&W has rewarded him handsomely over the years, with annual dividends faithfully coming in each year that exceeded the amount of his original investment in the company!
And the fate of the spendthrift president and his Atchison rail company?
“Atchison went into the hands of a receiver a few months after I saw the president throwing sheet after sheet of linen paper with engraved letterheads in two colors into the waste-basket to prove to me with figures that he was not extravagant,” the Pennsylvania Dutchman says by way of ending his anecdote in ‘Reminiscences of a Stock Operator.’
When not in use, turn off the juice
The point is this: I see no reason to pay $5 for a ream of printer paper to track my mortgage principal balance. I’ve even banned the kids from using printer paper so I don’t have to buy anymore of it unnecessarily. That stuff is expensive! The children now have to do all their doodling on the back on torn-open food packaging that I pull out of the paper recycling bin.
We spend so much time thinking about the big financial things in our lives and that’s all well and good. But I believe we shouldn’t neglect the little things or we might wind up like the Atchison, Topeka and Santa Fe Railway — bankrupt and forgotten.
I try to impress upon the children they have to turn off the light when they leave a room. “When not in use…turn off the juice!” I tell them.
It’s become a mantra that they repeat back to me when flicking off a light switch. They’re still at that sweet and young impressionable age. One is six and the other nine. The good financial habits I impress on them today — paying off the mortgage, turning off the lights when you leave a room — will serve them well for the rest of their lives.