Against the advice of many of my friends, I have decided to pay down my mortgage aggressively this year. Some of you might be thinking, “Why in the world would you want to pay off your house when the interest rate is only 3.75%?” Well, there are many reasons: most of which are summed up in my article from last March: “Should You Pay Off Your Mortgage ASAP?“, but the main reasons are that (1) it is still a guaranteed gain since I will not have to pay that interest once the mortgage is gone, (2) my cash flow will skyrocket, (3) I can increase my investment portfolio, and (4) I will be completely debt free with very little risk in life (which equals extreme peace of mind).
So the next question is, how well am I doing at paying down the mortgage?….Well, let’s break this down a bit – starting with the failures:
My Mortgage Payoff Failures
After Christmas died down, I began to refocus on my goals of paying down that house of mine. Ideally, my mortgage would have been down to $40,000 at this point….but it wasn’t….not even close. It was at $55,000. This was going to make paying off the entire lump sum in 2014 incredibly difficult.
All my life, I considered $2,000 to be a pretty solid emergency fund…until just recently. Toward the end of last year, I asked some of my wealthy friends how much they keep in the bank for emergencies. The lowest amount I heard was $6,000, which is three times what I would typically keep in my bank account. This got me thinking, “perhaps I’m not saving enough in the event of an emergency?” Plus, with my bank account paying 3% interest on my savings up to $15,000, I was not maximizing my potential earnings here. So, I began to change my gameplan.
Instead of throwing every single penny I had toward my mortgage (which was my previous strategy – if you can call it that), I thought it would be much wiser to stock my bank account up to at least $15k before making any additional payments. This would provide me with a higher level of financial security, maximize my interest earnings, and would also allow me to invest and earn additional money (by flipping cars) that would then increase my mortgage payments in the [not so distant] future.
So yes, I have failed to pay down my mortgage aggressively at this point (it is still at $53k or so right now), but I will have plenty of cash to throw at it later in the year.
My Mortgage Payoff Successes
In early April, I will have nearly $15,000 stocked up in my emergency fund, and any additional money that I earn over that amount will go immediately toward the mortgage. So, starting in April I should be able to show you a chart with an extremely sharp drop in my mortgage loan amount!
Yesterday, as I considered this to be my plan of attack, I wondered how much I would have to pay each month in order to get the mortgage completely paid off by the end of 2014. Well, me being a nerd and all, I decided to graph out my past payments and the necessary future payments to get this done… Let’s just say I was not at all impressed with what the chart showed me…have a look for yourself:
My mortgage started off at about $71,000 in August of 2011. Over the course of 2.5 years, I have paid off nearly $20k. But, in the next 10 months I expect to pay off $53,000? What sort of dream world am I living in??? I mean, look at the graph! That’s ridiculous! I am going to have to put over $5,000 toward my loan each month in order to make this happen.
Well, if you know me at all, you know that I am 99% stubborn and extremely competitive. I still plan to get this done.
How to Make This Possible
Since I do not quickly shy away from challenges like this one, I decided to figure out how this might be possible (instead of throwing in the towel as most would do at this point). Here are some positives coming in the future:
- I have an insurance reimbursement check coming for damages incurred to my house (from those dang ice dams…) ~ $3,000
- My work will reimburse me for an entire semester of school expenses in May ~ $3,500
- I expect to get a large tax refund ~ $3,000
- I am selling my Malibu, which should bring in over $6,500
- I will ride my bicycle for much of the summer, saving me hundreds in gasoline ~ $300
- My budget is allowing me to live quite inexpensively, and far below my regular monthly income
So let me have it, am I ridiculous? Or will you cheer me on?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.