We are the proud owners of a $500,000 paid-off house! 5 years ago, we paid off the $195,000 mortgage on our dream home. Since then, the appreciation in the real estate market has been good to us!
After years of focus and partnership with my wife Nicole, we’re mortgage free and thrilled about the future ahead of us.
To help our two young children remember this family tree-changing moment in our lives, we decided to celebrate with them. Instead of just burning the mortgage and tipping back a few glasses of champagne (which we did too), we came up with a few unique ideas of our own like running through a “Mortgage Wall” and whacking a “Mortgage Piñata”!
The kids had a blast and so did we. This was a moment we wanted our kids to remember. It was the day we decided that our family was going to become debt free for life.
When it’s all packaged up into a happy family story like that, paying off your mortgage sounds pretty simple and easy. Well, it was slightly more complicated than that.
We were intentional, determined and ready to do something incredible for our family.
To break it down, I’ve outlined the 10 steps we took to become a mortgage free family in less than 5 years.
1. Start With a “Why”
When I’m about to complete any difficult challenge, I always try to think about the “Why” before the “How”.
“Why” do I want to do this?
That way, I can always refer back to my “Why” throughout the difficult process to keep me motivated.
So for me, my “why” for becoming mortgage free was about reducing the stress that comes with having a big loan and only one source of income. I constantly felt pressure at work to not mess up because if I did, we could lose our house!
With two little kids at home, I went into “Papa Bear Protection Mode”. Given that I’m a personal finance nerd, this was the best way I could protect them.
That was my “Why”. If you’re considering something big like this, I’d recommend starting with a “Why” as well.
2. 15-Year Fixed Rate Mortgage
We got a 15-year mortgage when we bought our new home. This made our monthly payments higher overall (versus a 30-year mortgage), but more of the payment was going to the principal each month.
By choosing a 15-year, we were also forcing ourselves to make larger principal payments. With a 30-year mortgage, we could decide to pay more or pay less principal depending on the month. We didn’t want that option. We wanted it to be gone fast!
Last but not least, our mortgage interest rate was only 3% with the 15-year mortgage versus a quoted 4% on a 30-year mortgage. We chose to pay less to the bank and keep more for ourselves. If we went full term, we would have paid $92,752 more in interest to the bank! No thank you, Mr. Banker.
Check out Credible to compare rates and interest savings on a 15-year mortgage versus a 30-year mortgage.
3. Mortgage Payment No More Than 25% of Take Home Pay
With my first bachelor pad in 2004, I had a mortgage that was about 60% of my take-home pay. Let’s just say I didn’t have a lot of money for important things like … oh ya know, food!
My first house folly in my 20s is a hyperbolic example for more financially educated folks, but it stuck with me when we were looking for our next house. We wanted to be in our dream house for the next 30 years so our payment (principal, interest, taxes, and insurance) needed to be comfortable.
We made sure that our monthly mortgage payments did not exceed 25% of our take-home pay. This allowed us to allocate the other 75% to other areas of our life like household expenses, food, transportation, entertainment, saving and investing.
In this example, if your take home is $5,000 per month (after taxes), your mortgage payment shouldn’t be more than $1,250. Obviously, do what’s best for you and your family, but this is what worked for us.
4. Commit and Set a Date
My wife Nicole and I came to an agreement that we’d dial back our lifestyle and pay off our mortgage in less than 5 years.
This would require sacrifice on our part, but honestly, we live in the most privileged country in the world. How much “sacrifice” are we really talking about here?
5. Live on 50% of Your Income
At the start of our marriage, we paid off $48,032 of consumer debt. Since that time, we’ve consistently lived on about 50% of our income. There have been years when we’ve spent more and years where we’ve saved more. On average, we were a couple who saves around half and spends around half.
It definitely helps when you have a six-figure household income. During our mortgage payoff process, we averaged around $170,000 per year for our household income.
In order to become mortgage free in less than 5 years, we knew we needed to continue this 50/50 path. We had prepared ourselves for this reality and it wasn’t bad when we were both employed. When Nicole and I decided that she’d leave her job and stay at home with our two kids, the story changed a bit.
5 things we did to trim our expenses further:
- Decrease our grocery spending by ⅓ (Aldi rocks!)
- Cut the cord on cable (think HD Antenna)
- Embrace all the free and inexpensive things to do with kids (library time)
- Negotiate our cable and cell phone bills (switched from Verizon to Tello and saved a ton!)
- Take advantage of higher deductible insurance plans (you’ll need an emergency fund)
6. Increase Your Income
Even with all of our cord-cutting and grocery trimming, it was getting more difficult for us to live on one income and still pay this mortgage off in less than 5 years. And after all, you can only cut back so much. With income on the other hand … the sky's the limit!
We did the following things to increase our income during the mortgage payoff process:
Sell Stuff Around the House
Clothes, electronics, unused gift cards, purses, bikes and even my prize moped was sold (it was time … I hadn’t driven it in a year).
It’s truly amazing how much STUFF we accumulated in our house that we didn’t need or didn’t bring us joy. Turn the trash into cash, right?
Kick Butt at Work
I worked in sales at the time. If I crushed my goals, then I was rewarded with a bonus. I went into overdrive for the last couple of years and it paid.
Those bonuses went straight to the mortgage principal as soon as they came in!
Start a Blog to Stay Motivated
During our mortgage crushing journey, I started a blog and podcast that chronicled our family's path to mortgage debt freedom. I’ve been able to help people on a similar journey and make some money while doing it.
7. Budget Monthly With Your Spouse
Lucky number 7 here is probably the most important success in my eyes. The collaboration that my wife and I had during this process was incredible. I’m so proud to be married to Nicole. She’s a true partner.
Okay, enough lovey dovey … Get to the details, Andy!
On the first day of every month for the last decade, Nicole and I have used Mint to plan out our household budget. We review our spending from the previous month, allocate our dollars for the current month and review our goals for the future.
We dub this meeting our “Budget Party”. Well, I called it that originally to get Nicole excited about joining me. I added pizza, beer and wine to the “party” but she saw right through me and my marketing tactics.
She eventually joined the “party” after some gentle nudging. Today, she’s the one keeping me on task!
The budget we create together is a “zero-based budget”. This means that every dollar we have has a job. For example, if we have a $5,000 monthly income, all 5,000 of those dollars will be allocated to spending, saving, investing, etc. If we didn’t tell those dollars where to go, they’d magically float away. You know what I’m talking about, right?
If you’re interested in other options outside of Mint, check my list of the best budget apps out there – most are cheap or free!
8. Remember to Have Fun
With our tighter mortgage-crushing budget, we didn’t have a lot allocated for fun, especially vacations.
We decided that we’d take advantage of travel rewards for some free or inexpensive travel. Between my work travels and our responsible credit card usage, we were banking some solid travel rewards.
During the mortgage free path, we traveled to New York for a romantic getaway weekend on travel rewards. Flights and hotel would have cost us $1,500. We paid $0.
The year after, we traveled to Ft. Lauderdale for our anniversary. Yep, travel rewards paid for that one as well.
We even traveled to Cabo San Lucas with our entire family for just $300!
I’m not saying that using credit cards is for everyone. CREDIT CARDS CAN BE DANGEROUS AND CAN RUIN YOU FINANCIALLY. NerdWallet reports that the average US household that carries credit card debt has a balance of around $6,000.
For those who can live on a consistent monthly budget and are extremely responsible with their money, they might as well enjoy the perks that come from credit cards. If you consistently carry a credit card balance and have trouble making your payments, I’d highly recommend paying with cash or a debit card.
9. Celebrate the Wins
Four years is a long time to wait for a big goal. We decided to celebrate along the way.
When we went below $100,000 in our mortgage balance, Nicole and I went out to a nice dinner to celebrate. We ate at our favorite restaurant and enjoyed some champagne to commemorate this milestone on our journey.
And on the big mortgage pay-off day, our family of four went to the bank together. We took a picture as a family and went to a local diner to celebrate. My 3-year-old had an epic meltdown in the restaurant because his jacket wouldn’t zip, but hey, not everything can have a storybook ending!
10. Dream About the Future and Make Changes
Now that the mortgage is gone, a lot has changed for our family. With our additional money, we decided to make some changes.
We increased our giving from 1% of our take-home pay to 10%. With 5% going to charities and causes we are passionate about and another 5% to family, friends and neighbors in need. It's our own form of 10% giving!
Vacations are something that our family loves! Another 10% of our take-home pay goes to vacations each year. We love the fun in the sun and want to make it a permanent part of our family budget.
Both my wife and I left our corporate careers and are now pursuing work we enjoy instead of work we have to do.
My wife went back to school to become an esthetician. She loves helping people and having a flexible schedule as well.
I said goodbye to my sales job and now I am a podcaster part-time. We don't need as much money to live now so I'm working fewer hours each week. It's been great for my health and my overall well-being.
Final Thoughts on We're Mortgage Free
Right now, our future looks bright!
With no mortgage in our lives, our stress levels have decreased significantly and we're allocating more money for things that make us happy.
To keep the conversation going, I've outlined more benefits of a paid off house not just from our family, but for other mortgage free families as well.
Are you looking to become mortgage free? What would life without a mortgage look like for you?
Please let me know in the comments below.
This story was originally shared on JackieBeck.com on December 28, 2017.
Obviously, the income you were dealing with was far greater than the $4000/ mo. that you give as an example. A $195000, 15 year mtg at 3% gives a monthly payment of $1346.50, 33.66% of the $4000 income. To pay off in 4 years results in a monthly payment of $4316.20 or $51794/yr. I dont know how much money you make but for that payment to be only 25% of your income you would have to make about $208000 net per year. You are misleading people as to the financial reality of what would be necessary to pull this off. Even if you sell all your stuff I doubt if one would have $30-40k to sell for 4 consecutive years.
You are correct. Our income during that time was not $4,000 per month. That was only an example I gave for readers to work out the math for themselves.
During our mortgage paydown period, our income was around $170,000 per year. Take home after taxes and 401k, etc, we would have around $10k-$12k per month. We lived on around $6k per month and threw a boatload at the mortgage each month.
After I left my corporate career, I became much more transparent about my income. Given that this post is three years old, I wasn’t sharing openly about my income as much.
I would agree with you completely that it is A LOT easier for someone making almost $200,000 per year to pay off a $200,000 mortgage than someone making $50,000 per year.
Outside of those points, I hope you find the detail and steps I provided to be helpful on your journey. If not, I appreciate you taking the time to chime in.
This is absolutely so inspiring and implies great strategy. Just when I thought 30 year fixed was my only option.
Awesome! Glad you enjoyed the post!
While I love being debt free, the only debt you have is your mortgage, I have to imagine that money could earn better in like a ROTH or even a brokerage account in some SP type fund. Assume roughly 8% earnings per year, on the moderate side, the money you could invest would be far more valuable than the 4ish% on a mortgage. I am not saying paying off a mortgage is dumb, but I am just curious if my logic is missing. I know the brokerage account would be taxed, so I am not sure how that would overall affect the ROI. Just food for thought, please correct me if I am wrong.
You are not wrong at all! That’s what I love about personal finance … it’s personal. If it feels like a better use of your money to invest it in the stock market versus paying off your mortgage, you should definitely do that.
For me, I wanted to reduce the stress in my life as fast as possible. Having a big mortgage payment made me stressed. When we paid it off, it was a huge load off my shoulders.
I really appreciate your perspective! Thank you for sharing.
You know there is much debate on which is better, the 15 year or 30 year mortgage. Some always mention how 30 year fixed mortgage rates actually make it that you pay less when considering inflation. Yadda yadda math math. People constantly forget that being out of debt is the most freeing emotion you can have (probably after surviving a literal life or death situation). People will be surprised at how much happier they are, healthier they are, and more often than not, wealthier they are.
I love your perspective! That’s the type of financial freedom that gets me going.