I cannot wait until my husband and I are able to pay off our mortgage. We’ve made some great progress—especially over the last 5 years–but the end date never feels like it’ll come soon enough. This past week I have found myself trying to figure out how to pay down the house quickly.
At least 4 things have got me thinking a little obsessively about paying off our mortgage.
- We recently hit a milestone of having $25,000 left to pay. If my husband and I were to put all of our liquid money together, we’d be able to pay it off today! That money, though, is set aside for taxes, a car, retirement, and basic living expenses, though, so using it for the mortgage wouldn’t fit our goals.
- I figured out our monthly budget and realized my husband and I are spending $400 over budget per month. Our mortgage is $540 a month and if we paid it off, we could use those funds to cover our spending increase. We would have to pay the mortgage off very soon since we need this larger budget, and we don’t have the lump sum (see number 1), so this plan won’t work. I am incredibly grateful that my husband has agreed to contribute $400 more a month towards our living expenses, so that issue is solved!
- I want to clear my headspace. If we were done paying for the house, I wouldn’t think about it anymore, right? There are certainly other ways to clear my head—like being comfortable in the process of paying off the house instead of wishing I could finish the payments. (I will strive to do this too.) If I had some more headspace, I may have an easier time moving onto learning more about investing.
- My husband and I recently visited family in Alabama. A ton of new houses were built in their subdivision, so it made me think about houses and paying off ours.
I think there’s one more thing I can do to help myself let go of obsessing about paying off the mortgage and that is to make a plan.
If we changed nothing, when would our mortage be paid off?
About $465* of our $540 mortgage payment (dictated by the bank) currently goes towards principal. I put an extra $445 a month towards the principal each month. The math: 465+445 = 910.
*I know the interest will go down and the amount of our payment that goes to principal will change over time because of how interest is figured on mortgages. I just wanted to use today’s number istead of using a mortgage calclulator.
So we pay $910 towards our mortgage a month. If I divide $25,300 (which is what we owe) by $910, I get 27.8 months, so let’s round it up so that’s 28 months. That’s 2 years 4 months from now. Our final payment, then, lands in July of 2024.
I could accept that we’ll be done paying our mortgage in July 2024, but I wonder if there’s anything I could do to get it done just a tad earlier.
Here’s where the fun begins…
I ask myself, what would it take to pay the mortgage off at the end of 2023? That’d be cutting 7 months from our current timeline. Seven months of $910 payments is: $6370. Ugh, $6370 feels like a lot of money.
Option 1: If I put the money I am currently saving for a car ($5K) with the money I have for saving for house projects ($2K), I’d have enough—with $630 left over. If I did this, I’d want to replace the money when the house is paid off—at the end of 2023. Hmmm, this is one option, but I really like having a car fund and house improvement fund. Plus, I may need to use this money before Dec 2023 or a few months thereafter whereby I’d have recouped the money.
Option 2: What would it cost for me to pay an extra $6370 over the 21 months I have until the end of 2023? $6370 / 21 = $303 per month. I currently keep $800 a month out of my paychecks for my personal account. That’d leave me with $500 in my personal account a month. Would that be enough? I put $250 a month towards my emergency fund, car fund and house improvement fund. That’d leave me with $250 a month.
Luckily for me, I just figured out how much money I spent from my personal fund per month in 2021, which will help me estimate what I need per month this year. Shoot, it looks like I spent $460 a month (not including the money I put aside for future purchases or the money I currently put towards the mortgage). $250 a month won’t cut it.
Is my plan of paying off the mortgage before 2024 a bust? Not yet. Twice a year, I receive a 3rd paycheck a month. The first one will be this April and the second will be in September. Each of these checks should be $1300. I could put that much towards the mortgage.
Option 3: Let’s look at using 1 of my “extra” paychecks. $6370 – $1300 = $5070 , then divide $5070 by number of months 21 = $241 per month. That’s a $62 difference from option 2. $250 + 62 will leave me $318 a month. It’s still not $460, which is what I spend now.
Option 4: What if I put both “extra” paychecks towards the mortgage. That’s $2600. $6370 -$2600 = $3770. Now let’s divide this by 21 months. $180 a month. That looks a lot better. I am more confident I could give up $180 a month from my personal account. $800-$180 = 620 – 250 (what I put into the car, house, emergency funds) = 370 . That’s $90 less than what I spent per month out of my personal funds in 2021 but probably doable.
That was a lot of math, so let’s summarize: Here are my options for being able to pay the mortgage off by Dec 2023:
All of these options get me to a rememberable date by which to finish paying. The options also give me more of a challenge than I have now, which really is already a challenge. It’s worth a try though.
Option 1: Reallocate my car fund and house improvement fund towards the mortgage and not change the amount I put towards the house per month.
Option 2: Put $303 more per month towards the mortgage.
Option 3: Put 1 of my “extra” paychecks towards the house and pay an additional $241 a month towards the mortgage.
Option 4: Put both my additional paychecks this year and $180 a month in addition to what I already put towards the mortgage.
I’m going to start with option 3 for now. The 3rd paycheck in April is coming soon. I can commit to putting that towards the house. If paying the extra $241 stretches me too thin, I can change it. Also, It’s likely I’ll need to put my “extra” September paycheck towards the house, but I can make that decision closer to the date (which would mean I went with a mix of options 3 and 4).
I bought my house in 2006 and originally took out a 30 year mortgage. The mortgage would be paid off in 2036. If I am able to pay the house off in 2023, I’ll pay it off 13 years early. I wonder how much interest I will have saved by paying early. That’d be an interesting number to figure. I like giving less interest to the bank!
If I had stayed with the original mortgage and put the amount of money I paid early into an investment account, how much would I have made? That’d be an interesting number too. I may feel upset at missing out of those funds—if I had even thought of investing those funds at that point, which I hadn’t. It still may help me better understand investing though, so I may just do it.
In the few days since I made this decision, I have been able to focus on my goal of paying off the house in 2023 and spend less time obsessing over a solution. That has felt awsome.
Peace Out (and In),
PS. Writing this blog post has helped me make my plan. I hope it helps others realize it’s ok to have crazy, messy plans like this one. How you make sense of money can be as unique as you are.