Killing your mortgage in 3 easy steps
I was honoured when Mr. CBB invited me to share some mortgage tips on CBB. It’s evident that he really values his readers so this is a real honour. I’m speaking from experience. Derek and I became mortgage free at 28 (we purchased our first home at 23, and built a new, bigger home when we were 25.) These are the 3 most important actions we took in killing our mortgage early. In the interest of full disclosure our current home is worth between $280,000 and $300,000. It’s a lovely home, but the bank would prefer us in something bigger and more expensive.
Pay your mortgage first and last.
We’ve all heard the concept that you should pay yourself first. If you’ve been living under a rock, avoiding any personal financial advice, this means that you should set aside your savings as soon as you’re paid before you spend a dime. The story goes that if you never have access to the savings you won’t miss it, and you’ll be forced to live within your means. This works unless you’re a credit addict, then cut up your cards and return to step one. Decide how much extra you want to pay on your mortgage and pay that first, then pay your regular payments throughout the month.
At the end of the month we gave our mortgage an extra little kick in the ribs with whatever was left over as well; often we put Christmas and Birthday cash towards the sucker. We hated that mortgage, and wanted it DEAD.
Don’t borrow what the bank is willing to give you
We took a trip to the bank recently because we were interested in investing in real estate and wanted to know how big of a mortgage we could qualify for. We were shell-shocked by the size of the number. I won’t lie; my first thought was “wow, we’re like a big deal or something.” My second thought was “if we borrowed that much we might as well sign over our organs to the bank because they’ll own us, and we’ll be a slave to that payment.”
Banks are in the business of making money. It’s best for their profit margin if you to pay the greatest amount of interest possible. Therefore, they are going to offer you the maximum amount that you could afford without going bankrupt. You’ll be scrapping by to make the mortgage, and won’t be able to afford any prepayments.
Now, don’t cry foul at the banks. They have shareholders; they are in the business of making profits. You’re in the driver’s seat for how much you borrow. Act in your best interest, not the banks. There’s little value is owning a nice house, if you have to work 60 hours a week to afford it.
Freeze your budget, especially with pay increases
When we first got married Derek was working as a 3rd year steam-fitting apprentice, and I was finishing my last year of school. Derek took home $600/week and we made sure we lived within our means.
Fast forward to today and Derek is a journeyman steam-fitter, and has received a few further promotions as well. I have a full-time job as a teacher (when I’m not on maternity leave) and we still live on $600/week. Our incomes are higher than what they were when we got married, but we had financial goals that were more important than a higher standard of living. Without a doubt our expenditures have changed. We have three kids now and they eat every day, multiple times a day. What’s with that? Alternatively, we don’t have to pay for my commute to school, we don’t eat out anymore (it’s not that fun with 3 kids) and our $164.00 weekly mortgage payment is gone as well. Dropping those three expenses let us afford 3 kids on $600/week.
When your pay increases, but your expenses don’t you supercharge your savings. As your mortgage principal decreases the ratio of principal payment to interest improves too. Yikes, that was a little complicated. Think of paying off your mortgage like a game of snap the whip while skating as a kid. The first dollar, or first kid in line isn’t getting much action, but if it wasn’t for the first dollar doing his thing the last dollar wouldn’t swing nearly as far and do as much damage. Keep upping the payments and pretty soon, you’re killing your mortgage faster than ever before. Oh SNAP, that feels good. Unless you’re the kid who just hit the boards, then you’ll need some ice. Oh wait, he’s already lying on it. I never really liked that game.
One last thought……
Paying off your mortgage early isn’t easy. If it was, everyone would do it. It might not be easy, but it’s definitely worthwhile. Sure it will be tough, meaningful goals usually are.
Beware of negative thoughts; they’ll kill your success. Never say I can’t afford this prepayment, instead ask yourself “How can I afford this payment?” Rephrasing this as a question makes a world of difference.
How would your life be different if you were mortgage free today? Your answer may be all the inspiration you need.
Guest Post By: Hi, I’m Mandy at MoneyMasterMom. I wake up each day and try to share something with my readers to help them spend their cash, time, and energy in line with their values. I love to laugh, and I dance at the end of movies during the credits. I share my life with my hubby Derek, who blogs at Free at 33. He’s so funny and smart, but then I’m biased.
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