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Paying Off Our House In Less Than 4 Years

Looking at the title, you may think I’m crazy, but I really think that it’s possible to pay off our $70,000 loan in 4 years! You might think, “Why not just do like everyone else and pay your loan over the course of 30 years? It would give you a lot more cash flow. Plus, you could afford a much larger house with the low mortgage rates!”

The main purpose of this post is not to defend my debt-free beliefs, but just think about it for a moment! If you were completely debt-free by the time you were 30 years old and could invest heavily and bank loads of cash into your savings for the rest of your life, you’d have enough money to either retire 20 years early, or you could have your choice on where you’d like to retire: Tahiti, Bora Bora, the Bahamas…ANYWHERE! Paying off our house in the next 4 years would really put us in an amazing position with seemingly limitless options!

Only 2 Years Ago

When my wife and I first got married, I was in a dead-end job that paid only $40,000 a year (this isn’t terrible I know, but I lived in a very expensive area, and it was honestly difficult to make ends meet) and my wife was finding it difficult to locate a decent job. Our cash savings was depleting and our stress level was through the roof! It was a terrible feeling.

We began to cut every possible expense to keep our heads above water, and luckily, my wife was able to find a job that allowed us to start paying off our debts.

Rather than depend on my wife’s job to carry us through life, I decided to start an online business of my own (mainly this site) to produce extra income. A few months down the road, my wife decided to start a business of her own too (photography)! Today, our expenses are still low, and we have increased our earnings dramatically!

Our Basic Plan

I actually haven’t fully discussed this plan with my wife yet, but we are both in agreement that we’d like to get rid of our mortgage ASAP! Hopefully, she’ll like the details that I laid out below! ;)

The Basic Needs and Extra Income

Since we have decided to live quite frugally, my wife and I can actually survive on my income alone! This leaves my wife’s job income, her photography income, and my website income as discretionary. All of this gives us about $2,000 extra per month.

I know some of you may be saying, “I don’t have an extra $2,000 per month! So, I can’t possibly pay my house off in the next 4 years!” Well, if you recall, we didn’t have any extra money either. We decided to change our sitation by living frugally and building businesses to increase our income. Because of these good decisions, we’re now able to have this as an option! If you’d like to earn extra money, browse through my site. I’m sure you’ll have a few ideas spark in no-time. :)

Future Savings and Expenses

At this point, my wife and I have about $4,000 in our emergency savings (since we are renovating our house, we have decided to keep this amount a little lower than normal and use the excess on our house). We plan on bringing this back up to about $10,000 once our house is fully renovated.

In order to complete our house renovation, I think we’ll need to spend another $3,000, plus another $5,000 in order to furnish our bedroom, the living room, and our office.

I’d like to think that our house will never cost us a thing, but unexpected expenses are going to happen. I’ll figure on $5,000 over the course of the next 4 years.

Here are the above points in summary:

  • Need another $6,000 in our emergency savings in the next year
  • Need $8,000 to complete our house renovation and furnishings in the next 2 years
  • $5,000 in unexpected expenses over the course of 4 years

Here’s a graphical representation of these expenses, stacked on top of one another to show the total expense for each year:

Extra Mortgage Payments

Based on the above graph, I have concluded the following:

  1. We can pay an extra $1062.50 each month for the first year – We made $24,000, but had only $11,250 in expenses, which means there’s an average of $1062.50 extra per month.
  2. We can pay $1,562.50 extra per month on our loan in Year 2 (same logic as above, but no longer needed to put money into our emergency account)
  3. In the last 2 years, we can put $1,895.83 extra per month toward the house loan – again, the same logic as before, but now we’re only putting money aside for unexpected housing expenses.

Cutting Down on the Principle

By paying the additional $1,062.50 each month in the first year, our principle will be cut down to $53,484.39.

Upping our payment in the second year to $1,562.50 (on top of our regular mortgage payment), our new principle amount after Year 2 will be $30,338.68.

Then, by paying $1,895.83 from the beginning of Year 3 on, I can actually get rid of my mortgage with 9 months to spare!!

Conclusion

If this whole mortgage payoff goes according to plan, my wife and I could be completely debt-free by November, 2014!

Do you think this plan will work? Can you think of anything I might be missing in my estimates?

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78 comments to Paying Off Our House In Less Than 4 Years

  • Matt

    I am so on this same plan! We got out of debt, built our emergency fund and are focusing on killing the mortgage. We currently put an additional $1138 each month to the principal and will continue making payments into our savings account at the same rate as we do now then each year after tax season we will make a lump sum deposit of what ever money is above our 6 month emergency fund. We have other savings accounts but wanted to keep this a simple as possible.

    People think we are crazy for doing this but I think they are crazy for living in houses that they can technically afford but will never pay off.

  • The only flaw is you putting around $12K a year into an illiquid asset. Are there alternative investments that would earn more than the mortgage interest rate that may grow over time? Interest rates are the lowest we have seen in ages, it might be an opportunity to earn more elsewhere.
    krantcents recently posted..Don’t Buy Hamburgers!

    • I have investment accounts that are automatically funded from my paycheck already. Paying off the house would be in addition to that.

      Sure, the loan may only be 3.75%, but when the interest is building on $70,000 of debt, it really adds a lot to the final purchase price of the house. I could try to earn 4 or 5% through investments, but my earnings would only be on $10,000 or so. Since my investment money is lower than my mortgage debt, it would be wiser (and more cost effective) for me to pay down the mortgage.

    • John

      People always suggest that you can earn more in the market. One thing you can not put a $value on is RISK. What you get sick and you are not able to work anymore? Life insurance won’t help unless you are 6 ft under. What if you child or family need your full time assistance because they are ill? There are too many ‘IFs’ in life. My advice..hope for the best and PLAN for the worst. Try to pay it off asap because 30 years is a LONG LONG TIME!

  • Good luck! I’m sure you can do it.
    Did you take into account the taxes you’ll have to pay from the extra income?
    retirebyforty recently posted..Communicating Overseas for Less

    • I did take taxes into account. We really make about $3,000 extra per month, so I just knocked it down to $2,000 to factor in the taxes we’ll be paying to Uncle Sam.

  • Awesome!! I’m so behind you on this plan. I love it. I’m trying to get our house paid off asap too, although we still won’t be close in 4 years. Best of luck!

  • We share the same plan when it comes to paying off the mortgage! I am also working hard on paying it off within the next 4 years.

    By paying off the house, your lifestyle security is a priceless return on investment.

  • Great plan! Once I finish grad school, I will be right there with you, creating my own plan to pay off a house as soon as possible. I think this is a great idea!
    20′sFinances recently posted..Web Update: Contact Page

  • Yah boi, now that’s how you do it! You’re going to be in such a cash surplus once your mortgage is paid off! Imagine owning your house and all your cars. home free buddy. If more Americans did what you;re attempting to do, we’d be in a much stronger economy.
    Jon | Free Money Wisdom recently posted..50k Bonus Points with American Express Gold OPEN

    • I believe the same thing Jon! If America continued to live below their means, we would not be struggling so much in our current economy! I’m blazing the trail and I’m hoping quite a few people join me! :)

  • I like what you have done here, I find that by publishing thinks like this, or at least telling people your goals, you are more likely to hit them as you have upped the pressure on yourself
    James H recently posted..spy on text messages

  • Derek-
    It’s hard to argue with someone’s desire to be debt-free. I have to side with Krant Cents on this one. With rates where they are (as you said 3.75%) there is cheap money. Also, with where stocks are I’m confident you can earn >4% over that course. The only question is: does the satisfaction and freedom of being debt-free trump the potential earnings you’re giving up?
    In you case: yes.
    Whether you’re debt free and 30 or 39, you’re ahead of 99% of Americans.
    Funancials recently posted..Life and My Finances Giveaway!!!

  • Wow, a house for only $70k? Can’t find that where I live.

  • THANK YOU!! Finally, someone who feels the same way about their mortgage as I do! We paid off our house last year and it feels wonderful! Everyone made fun of us for not borrowing at such low rates but now 100% of our money works for us,not the bank.

    Good plan Derek!
    Matt Wegner @ Financial Excellence recently posted..Vacation Toys for Cheapskates

    • Nice job Matt! I bet you feel amazing now that your house is paid off! With all of your extra cashflow and limitless options, I bet your friends have turned envious instead. I can see that happening down the road for me. If only we could all just have the same financial plan together! ;)

  • Wendy

    Yes, interest rates are so cheap these days, but paying extra on the principle each month in addition to your mortgage is the way to go. I would never live in a home again that had a mortgage. The mortgages today are bundled and sold and it is impossible to know who even owns the house or to whom to get the deed stamped paid at the end. At your age you will be able to buy another home or two and have those paid and have a rental income. It worked for me! Thanks for all the great advice

    • That’s what we’re working toward! Once our house is paid off, we’ll be able to save up money in a hurry! We’ll buy one rental property, pay it off, then another, pay it off. After 10 years or so, we’ll probably have 4+ rental properties and have so many income options! Plus, we’ll have absolutely no debt! It’s going to be a beautiful thing!

  • I bet you’ll end up doing it even faster than you think! We’re paying off our house too — we’ve got just under $50K to go and are trying to finish up by the end of this year. Of course, that will take a small miracle but I haven’t given up hope, and even if we miss our goal we’ll still have it paid off quickly.

    • That’s what I’m thinking too. What if we miss our goal? Well, then we’ll have the house paid off in 5 years instead of 4. It’s still way better than having a mortgage for our entire lives! :)

  • Congratulations! I’m not paying off the house quickly, but it doesn’t matter. You have a plan to achieve your goals and it’s being executed with mastery. Good work!
    Alex | Perfecting Dad recently posted..Potty Training Without Nonsense: Strategy 1

    • Thanks Alex! Yep, not everyone’s going to agree on what to do with their money, but as long as we have a plan that makes sense and will get us to our end goal, that’s all that matters! Thanks for the kudos!

  • This sounds like a great plan, and an achievable one. I would suggest bulking up the 5,000 in repairs in case something big (or two) blows up over the next four years. Of course, it is entirely possible that your side businesses will grow, and then you will have even more to potentially pay it off sooner!
    Melissa recently posted..July and August 2011 Financial Goals Update

    • Good point Melissa. It is an old house, and it may take more than $5,000 in repairs. But, you’re also right about the income. Since we are young and are really just starting out, our income should soar well beyond what we’re earning now, and the repayment might happen in 2 or 3 years! Who knows. It will be fun though! :)

  • Anything’s possible if you make a realistic plan and stick to it.
    Emily recently posted..When Your Retirement Funds Take A Dive

    • That’s right! I know that there will be some emergencies that may come up, but if I could pay off our house in less than 4 years, it sure would be a sweet feeling!

  • I think it’s awesome to plan on paying off your house in 4 years. I have a post going live tomorrow about retirement and it mentions making sure your house is paid off well before retirement. At the tender age of 30, you’ll have plenty of money to sock away for those golden years.

    Though, I am curious about something. You mention that you live in an expensive area, but your mortgage is only $70K (not that it isn’t a lot). Did you move to reduce your expenses?
    Little House recently posted..Taking Frugal Too Far

    • I’ll have more than 40 years to build up my wealth! I’d say that’s more than enough time.

      About the “expensive area” comment. I believe that I said, I USED to live in an expensive area. Now we have moved and live in a very cheap area. Sorry if I wasn’t very clear about that.

  • Your plan can totally work, provided you stick to it. I would suggest perhaps amending the plan to 5 years, as that is still a good goal, and will give you time to save for unexpected expenses between now and then that are not emergencies – consider them opportunities or something that will enrich your life – perhaps a photography class for your wife or a coding class for you.
    Jeff @ Sustainable life blog recently posted..Fitness goals

  • I think this is a great plan! One thing that I didn’t hear though… Will there be no baby in the next 4 years? Life happens, how would your plan change?
    Financial Success For Young Adults recently posted..Review of Betterment Part 2: Opening the Account

  • Diane

    Nothing feels better than having a mortgage paid off! I agree with a few posts, up that annie to more than $5000 for emergencies – one busted pipe in the winter could take a huge chunk of that money. You have a plan and are going forward with it, that is the important thing.
    I am concerned about the tax rate you will be in after you pay off your mortgage, please speak to an CPA.

    • $5,000 is just a rough estimate. We’ll still have our regular $10,000 emergency fund for those unexpected house issues too! As for the tax rate concerned – just remember that we’ll be saving more than $20k on interest by paying it off early (and actually, more like $70k if we would have taken out a 30 year mortgage). Paying taxes should not be our greatest concern, but thank you for the advice, I will have to look into the added expenses of owning a home free and clear.

  • Melissa

    So glad to see someone else with this goal. We are planning on paying our house off in 3 years. Most people think we are crazy, but I can’t wait to have it done! The great part is, if you do have an emergency that would need to be addressed (that would take more than your emergency fund), you can just not pay extra that month. Since your budget allows for the extra on your mortgage, you have money to work with if you really need it. I find it quite comforting to have that as a cushion for the just in case. Though, I hope to never use it so we can make our goal.

    • Congrats on taking the initiative to pay off your mortgage as well!!! I’m so excited that there are so many readers with a similar goal as my wife and I! Like you, we have many friends that think we’re crazy….”The interest rates are low – why don’t you invest the rest?” —as if they’re actually investing the rest of their discretionary income….

      Rather than risk my money in the market (I am investing some for retirement by the way), I’d rather take the sure thing and avoid paying all that interest! :)

  • 70K Mortgage? Where do you live?

    If I were in that position, which I am not, I would be afraid of the lack of liquidity at first. Ever figure out how much interest you are really saving if you just saved the money in cash and then at the end of year 4 pay off the note?

    This way you have all that liquidity until the date that your cash flow gets fantastic
    Evan recently posted..September Net Worth Update–Nominated for a Plutas Edition

    • Ha, I live in Michigan where things are cheap! :)

      We took out a 15 year mortgage, which is already an interest savings over the 30 year (obviously), but if we pay it off in 4 years, we’ll save about $20k than if we made regular payments for 15 years. I’d say it’s worth it. Plus, it won’t really be that hard, especially when my online businesses grow and I get raises at my regular job.

      • The cheapest houses in SF are around $500,000, and they are really kinda dumpy. You’ve got to get in the $700,000 level to get something decent!

        Consider yourself lucky. Are you still making ~$40K from your day job or have you moved on?

        Best, Sam
        Financial Samurai recently posted..When Hobbies Become Full-Time Jobs

        • SF housing prices are crazy! I don’t know how people survive out there. I think I’ll continue to enjoy my $75,000 house with 3 bedrooms and 2 baths….

          I have moved on from my initial $40k earnings. I now make a bit more, plus there are reitirement benefits and bonuses! ;) I only expect my earnings to increase, which should make the house pay-off easier.

  • [...] Derek at Life and My Finances has a plan to pay off his house in 4 years. [...]

  • Derek – I truly enjoy this post and your plan to tackle that housing debt in 4 years!

    You write a very nice way of going about it and show that action produces results!

    Well done.

    Best, Sam
    Financial Samurai recently posted..Are There Really People Who Only Work 40 Hours A Week Or Less?

  • I’m totally with you on this. We plan to finish off our mortgage in the next 4 years too.
    It’s currently sitting at £110k so it’s going to take some doing but my husband and I are both on the same page when it comes to getting rid of this debt

    Good luck, I’ll be cheering you on :)

  • Hi Derek – first time visitor to your website here. I think it’s terrific you are paying off your house so quickly. My wife and I are on a house payment plan to pay it off by 2017, and we are paying off an extra $1,900/month to make it happen.

    I often wonder if I could earn more in investments with the extra money, however, my investments have all gone down right now, so it makes it an easier decision.

    I think my weakest area right now is earning more from my side websites. I work a great paying full-time job, and I think part of the challenge is it pays well and meets all my needs easily. What advice would you give to someone who has all that they want and more from their day job, but still is driven to earn more from their websites?

    Great article!
    Jeremy Johnson recently posted..53 Miles Per Gallon In A Full Gas Car

    • Time – that’s the difference. If you can succeed with websites (setting them up in such a way that little maintenance is needed) than you can earn back your time. You could have all of the experiences that you wouldn’t have had time for from your regular job. Either that, or you could put your time to work for you by developing more passive business (or websites). The result is an exponential increase in earnings. Then, not only will you earn more time, but you’ll earn more money than before too!

  • That’s a sweet solid plan! I wish we could pay our mortgage off in 4 years but since we own just over $220k I think its going to take a little longer ;)

    We decided to put any extra earnings into our mortgage, which will save us thousands over the next few years just on interest.
    Ben – BankAim recently posted..First Internet Bank Of Indiana Gives Highest 5 Year CD Rates

  • I have an iPhone app that shows me how much I’ll save by pay specific amounts. Its pretty sweet, but it doesn’t take into account when the mortgage insurance falls off in a few months, so its not completely accurate but its pretty close.. keeps me motivated.
    Ben – BankAim recently posted..Top 5 Checking Account Promotions This September 2011

  • Great goal!

    Although I must say, if I thought that we only needed another $5,000 in unexpected repairs on our house for four years, we’d be in deep doo-doo. Last summer it was a new Central A/C unit at $7800, this year it’s foundation work for $7500. Yikes! We’ve also had several thousand dollars of other expenses.

    Still, our house is a good one (we are in Houston, which explains why I’m not crying about the foundation–it happens to most down here, and we are in an exceptional drought).

    You might want to set aside more than $5,000? I guess it also depends on the age of your house. Ours is 36 yeas old.
    Amanda L Grossman recently posted..Retail and Manufacturer Competition: When Consumers Lose

    • Ha, well, our house is 70 years old…. but it is built solid! If the A/C goes out, we could do without it for a while (that’s the beauty of Michigan). We’ll set aside more than $5,000, but that’s just what I’m planning on for future expenses.

  • Whoops–I forgot to add: that was in just two years of living there so far.
    Amanda L Grossman recently posted..Retail and Manufacturer Competition: When Consumers Lose

  • Love this goal! It’s definitely possible. I’m on track to pay mine off in 2 -3 years, as well. Best of luck to you!
    Mortgage Free Mike recently posted..Open enrollment time: Changes to my health coverage

  • My husband and I are on a 32 month plan at this point; we were a bit late in the game for paying it off sooner than later, but we’re there now. He wants to retire now (he can but is waiting until the house is paid for), I won’t be retiring for another 5-7 years, but getting it paid off will certainly make a significant difference as far as our retirement expenses. We live in a ridiculously expensive property and school tax area, but if we have the mortgage paid off we should certainly be able to afford to keep our home. Given there are so many houses for sale in our area, we certainly can’t sell! So we’ll stay, and have the house paid off. Its tough choosing where to put our money! savings? home? its hard. I am saving, he is paying extra on the mortgage so we have both.

  • [...] actually have a big impact on your finances for the rest of your life). What I’m talking about is real estate. Almost every one of us will pull the trigger at some point in our lives and purchase our very [...]

  • The real estate business does not seem to have caught its breath’ It seem to be gasping for air. All the hupla years and years ago about being in the housing market was the best thing that could ever happen to you. I can can picture the young real estate agent’ the banker waiting for the buyer to sign on the doted line chuckling when someone suggested that real estate could maybe not be the greatest investment in the world. So over confident that you could smell it in the room.

    • Yep – the real estate market seems to be at its bottom, and you’re right, we were so fortunate that we waiting to buy a house until now. Can’t wait to pay it off and live a life of wealth! :)

  • [...] Off Mortgage or Invest? Paying Off Our House in Less than 4 years We’re Thinking about Refinancing Our [...]

  • [...] and I are far from normal. In order to save $75,000+ on interest payments, we’ve decided to pay off our house in less than 4 years. After all, not much has changed financially in the last couple of years, so instead of making [...]

  • Tony

    Great article. I had almost the same plan. I started off as a part time teacher making 20k a year and my wife was at 40k a year. We started by putting a extra 500$ a month on our mortgage and as time went by we kept increasing the amount. I got a new job making 80k a year and increased the payments significantly to a extra 2000$ a month. I must admit I had to cut most extras out of my life but my 95000 mortgage will be paid off in 9 months. The total length of my mortgage will be 3.5 years and I will save roughly 75000$ in interest and 26.5 years of payments. It Is a tough thing to do but stick with it. It’s so worth it. Here are some pointers. 1. Never skip a additional payment thinking you will make up for it because you won’t. 2. If you’re bank let’s you make principal payments every time you get paid on a 2 week cycle. It makes it so you get a couple bonus payments every year. You also save money on interest because that’s 15 days each month your not paying interest on the 900$ extra principal. 3. If you have a fha loan they won’t take off the mortgage insurance for 60 months and it doesn’t matter how much you’ve paid off so don’t bother trying. When my house and truck are paid off in 9 months I plan to keep putting most of the money I was putting into the house and truck into a savings account and use it to pay cash for my next house. Right now I’m putting roughly 45k a year into paying those 2 things off. So if I put that into a account for 5 years and sell my current house in 5 years I should have roughly 350k in cash so I won’t need a loan on the dream house I want.

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