How We Became Mortgage-Free In Five Years
Estimated reading time: 14 minutes
Today, I want to explain why we were adamant about becoming mortgage-free fast and how we achieved this goal.
Freedom From Shelter Debt Is The Best Feeling
Becoming mortgage-free is not easy, so I won’t make it out to be something it’s not. However, it IS possible.
We are proof of that; we did it all before we turned 40.
Secrets Of Mortgage Freedom
Many things have led to us becoming mortgage-free in 5 years, which I want to discuss since it’s a frequently emailed topic.
Since blogging about wanting to pay off our mortgage early, I’ve had readers wanting to know if there were any secrets to share.
It was such a hot topic that we were even featured in the Toronto Star to share how we paid our mortgage off so quickly.
I thought I’d wait until we became mortgage-free to fill you in on just how we did it, and that time is now.
No, we didn’t win the lottery or get money from family or friends.
We earned every last bit of it.
If you read our net worth update for April, we were excited to tell everyone that we were finally saying goodbye to the mortgage payment.
I promised I’d let you know what we did and what problems we met along the way, as it was no easy feat.
Discharge Fees When You Become Mortgage-Free
My friend Michael Anthony Lloyd, a mortgage expert who has blogged here, also discusses mortgage discharge fees.
He also has insight into other tips you should know when you want to become mortgage-free and make that last payment to your bank.
The discharge fee was something that set us back, as we didn’t do enough homework to learn what it was all about,
We also weren’t aware of how long it would take to make the last mortgage payment and the steps involved.
It takes time, and you can’t just make a lump sum payment from your bank account either; you need a bank draft.
What Is A Bank Draft?
Every bank is different in terms of charges for the draft.
RBC Royal Bank® issues bank drafts in domestic and foreign currencies.
Bank drafts can be used to make a payment to a third party in almost any currency, both in Canada and abroad.
Bank drafts offer a convenient and secure means of payment, and are more easily negotiated than postal money orders and are less vulnerable than cash to loss or theft.
Bank drafts are available for a fee of $8.50 each (any currency). And, depending on your banking package, you may be entitled to a number of commission-free bank drafts per year.
Michael shares more information below that you should consider before breaking out the champagne.
Mortgage Freedom Day
We all dream of the day we can finally get rid of that dreaded mortgage from around our necks.
For many, it is still a long way away; for others, it’s coming up due to hard work and the right decisions a long time ago.
So what happens when we finally get there?
The first thing to remember is that more than just your current mortgage holder is involved.
Though your lender is who you need to talk to, there is always the “property charge” registered with your provincial body that many people forget about.
For example, here in BC, the Land titles office will have a registered charge placed on your property until the lender proceeds with discharging that charge.
Until completed, your property is not “free and clear,” even if you paid off the balance of your mortgage with your lender.
In Ontario and most of Canada, this is a discharge fee paid to the Government /Lender to remove their charge from your property.
Check with your lender for their discharge fees (usually listed on their fee menus), as it’s a necessary step many forget about until years later when selling or refinancing their property.
Our Road To Becoming Mortgage-Free
As many of you might know, I bought my first house at 21, which gave me my kick-start into the real estate market.
After selling that house, I purchased a more prominent home, only to sell that before moving to Canada for a nice profit.
This was where a good chunk of my money came from to help put a down payment on our house in Canada.
My wife also had built a house when she was 30 and went on to sell that for a profit just a few years later so she could return to school, travel, and ultimately meet me and get married.
Buying a house right away in Canada was not a step we took advantage of; instead, we rented for a few years, saving every penny we could.
We were a frugal couple from the moment we met, and that helped us throughout our relationship as we didn’t have any money fights.
Financially, we knew that we wanted to be mortgage-free early so we could do what we wanted in life and not have the burden of debt looming over our shoulders.
While some couples may have already started a family, we were both in school again for the second time, which we paid cash for out of pocket.
Paying Cash For Transportation
I purchased my used vehicle with cash, and my wife had a brand-new one she bought before she met me.
At the time of purchase, she paid 0% interest, which would last for five years, and a $7,000 cash down payment.
Following the maintenance schedule, she took good care of her vehicle, and it’s still in mint condition today.
I was shocked to see the shape of it with the Canadian winters, but she’s always maintained it.
Vehicles can be a money pit, but I’d take care of it first rather than keep buying a vehicle every few years.
Saving Money To Pay Down Our Mortgage
Grocery shopping has been a battle for us, but we have learned so much about living a frugal life in Canada just by reading and learning from experience.
Using Canadian coupons helped us save thousands of dollars and build a stockpile that we still live from today.
We started the grocery game challenge when we started the blog, and I can’t tell you how much tracking our grocery shops has helped us save money.
Not only that, but it taught us more about what foods we put into our bodies and how much we eat.
It’s been many years since the lucrative coupon frenzy, and although there is still money to be saved, the coupon train has slowed down for us.
It’s OK To Splurge
Using coupons didn’t mean sacrificing nutrition or enjoying life, as we eat a balanced, healthy diet.
Yes, we splurge like everyone, but we don’t go overboard and try to make and prepare as much as possible at home.
Many people will say they don’t have the time to use coupons, and that’s fine.
We weren’t going to turn our backs on free money.
It was like shopping and earning a side income at the same time.
I’m sure many couponers would agree it can be lucrative if you know how to budget and spend your money wisely when couponing.
Buying products you “might” use just because you have a coupon isn’t a savings plan. It’s a waste.
New To Me Clothes For The Win
We bought clothes and still buy some odds and sods, including clothes at second-hand shops, and love garage sales, free stuff, online sales, etc., to save us from buying new.
I can’t tell you how many times we’ve purchased from the second-hand shop items that still had price tags attached.
There is much to be saved if you take the time to look around.
It’s always easy to find someone who wants to donate items that are practically new or with tags, as long as you aren’t in a rush for them.
Being selective for our frugal lifestyle has helped us see what areas we can be creative in and what areas we need to call in the pros.
Moving Up The Career Ladder
Our careers have slowly but indeed brought us up the ladder with ways to go, but we would both work overtime and never turn down an opportunity to make extra money on the side.
Related: How To Ask Your Employer For A Raise (Free Printable Letter)
Earning Cash Money
Over the first five years of owning our home, we also took advantage of hosting international students for cash.
It was one of the best experiences we’ve ever had, and I plan to do it again once I finish renovating our upstairs bathroom.
There are always focus groups or studies in the Greater Toronto Area that pay good money for a bit of our time, and who wouldn’t want to chat about insurance for an hour, get free food, and pay $100 cash?
That’s where our entertainment money came from and sometimes still does.
Budgeting Our Way To Mortgage Freedom
As we saved over the years, we opted to eat in rather than go out, leaving dining out for special occasions.
We had no problem turning down invites from friends when the money wasn’t in our budget.
We refined our budget over the years as it wasn’t something we used until I began blogging, and now we offer our budget accessible to our fans.
We’ve kept the budget simple, but most people want simple over complicated because budgeting isn’t something people line up for, as it can be pretty dull unless you are a numbers nerd like I am.
Family Planning
We don’t have any children, but we aim to start a family soon, especially now that we are mortgage-free.
Update 2023– We now have an almost 9-year-old son.
We didn’t put family planning on hold, as it was much more complicated than that.
Having to start our life over returning to school, illness, and struggling to conceive pushed family planning back.
We opted to wait until we were secure with our careers and finances, but that’s not what everyone should do; it’s what we chose to do.
Why We Wanted To Become Mortgage-Free
Everybody knows about the traditional mortgage that many people enter, including my parents.
The traditional mortgage was always based on a 25-year amortization period and had 12 monthly payments per year.
Over the years, different mortgage options have been presented by various financial institutions.
They cover anything from 30-year amortization periods to rapid weekly payments that cut your total time to approximately 22 years.
Although the Canadian Government eliminated the 30-year mortgage for a good reason, many choices remain.
When we were still looking at houses, we knew we wanted to pay it off quickly so we could be mortgage-free and live a debt-free lifestyle.
Spending Less Than We Could Afford On A Mortgage
We purchased a home well below what the banks said we could afford, but we went with a mortgage that we could pay with one income, including the bills.
This was just in case something happened to one of our jobs or if we became ill.
Thankfully, we took that route as one of us got sick and had to live off of one income to pay our mortgage and bills.
We played it safe, but we also got a steal of a deal in a sought-after area in a big city but tucked away from the hectic life.
Price Increase Is Relative
What’s my house worth?
It’s worth as much as someone is willing to pay for it, and unless you plan to downsize, it’s all relative.
Our house is now worth over $100,000 more than the purchase price five years ago.
As of 2019, our house could quickly be listed on Realtor.ca for almost $700,000 once we finish the basement.
Our home had everything we wanted at the time, although now we wouldn’t mind the extras like a more oversized yard, a pool, and a walk-out basement.
Those are wants and NOT needs you must consider when purchasing a home.
Once our son finishes elementary school, we may purchase a new home on a more extensive property, but not necessarily a bigger house.
Mortgage Pay-Off Plan
After searching for the right mortgage, we entered a 5-year open mortgage with a 3.99% interest rate on a quick weekly payment scheme.
We put what we thought was a decent down payment on the home of $80,000 and paid $265,000 for the house, leaving us with a mortgage of $185,000.
That was five years ago, and we have happily finished paying off our mortgage.
We initially started with the required weekly payments that would see us mortgage-free in a projected 22 years, as our incomes were lower than they are today.
As our finances improved due to increases at work and our spending became more controlled, we started to drop extra monthly mortgage payments as and when we could.
Eventually, we took advantage of the 20% mortgage paydown option each year and paid off $32,651 as a lump.
We continued to pay extra payments and then paid off another lump sum at the beginning of year 4, $37,000.
Now that the lump sum payment option was at its maximum, we increased weekly payments to the max.
Making Our Last Mortgage Payment
Our last payment was to clear the final amount owing, including the discharge fee.
This bank draft came to a total of $68,787.19. I had to bring in my remaining funds from the UK as they were destined for that.
We lost some money in the exchange rate as the actual exchange rate and what you get are different figures.
That aside, I thought I would furnish you with the numbers showing why we did what we did through the savings.
25 Year Mortgage
A traditional 25-year mortgage with monthly payments at the same interest rate throughout the entire term, not just the five years, would have cost us $291,657.29, which comprises the $185,000 principal and then $106,657.29 in interest.
Rapid Weekly Mortgage Payment
The rapid weekly mortgage payment option saved us three years of mortgage payments and would have given us the following figures had we stuck to the 22-year plan:
- $275,844.94 is the $185,000 principal and then $90,844.94 in interest.
However, our five years pay it like crazy option worked out like this:
We paid $210,940.17, the same $185,000 principal, but only $25,940.17 in interest.
This saved us $64,904.77 in interest over our full 22-year term, assuming that the interest rate stayed at 3.99% and a colossal $80,717.12 in interest over a more traditional 25-year mortgage.
Invest or Pay Down The Mortgage
To make $64,904.77 in 5 years, we would have had to invest a monthly total of $972.12 and earn a 4.15% return to come up with the same amount, which would have been easily attainable.
The thing is, we invest roughly that much every month already.
To make $80,717.12 in 5 years, we would have had to invest a monthly total of $972.12 and make a 12.25% return to come up with the same amount.
I haven’t seen a guaranteed 12.25% return, so paying our mortgage worked better for us.
Taking the payments we can now re-direct from paying off the mortgage into investments will lead us to pay $252,751.20 over the next 20 years.
I shall demonstrate the effect by taking the above basic monthly payment of $972.12 and adding to it every month with an interest-earning rate of 3.99% (same as what the mortgage was).
After 20 years, that payment redirection is now worth $357,332.73.
Do the maths for yourselves when people ask me why we didn’t invest more and leave the mortgage chugging away on automated payments for years.
I won’t tell you to pay it off now; not everybody can, and not everyone’s financial numbers can support it.
The point is I like to see numbers and determine what the difference will be.
I like to see where the advantages are.
Not everyone will agree with our path to becoming mortgage-free, and that’s fine. It’s our life and our finances.
I hope you make the right choices with your finances, but do it because you want to and not because someone told you that you should do it because it’s the right way.
Do What’s Right For You
My Canadian friend Mark at My Own Advisor, who is also paying down his mortgage, said something that I feel is important to hear when it comes to the debate of paying off the mortgage or investing the money.
I believe there’s no perfect answer to this debate, it depends on the situation, the timing and often some reflection of short and long-term goals
Be in control, do your homework, and don’t gamble with investments, especially if you don’t know what you are doing.
Risk is inevitable, but when you risk your money without knowledge, that could bite you in the butt. I’m sure any savvy investor will tell you that.
We Own Our House
I’m not an investor, but I like to make our money work for me the best way I can, and now we can worry less about paying off a mortgage.
Maybe I’ll become an elite investor one day, but I’m still learning that side of the financial coin.
By eliminating a drain on our resources, such as the mortgage, we can now benefit from investing the money instead of the bank benefiting from us.
It’s also been nice to wake up knowing we are debt-free and can make choices that may have been out of reach for us in the past.
Discussion: Are you planning to pay off your mortgage early or use all of your extra money to invest?
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