It goes without saying that the biggest expense for most folks is housing, and in particular their sometimes giant mortgage. While generally a blessing, 30 year loans at relatively low interest rates with qualification standards broadly open to most are a great thing, mortgages nonetheless chew up a lot of cash available for consumption and often times require permanently higher incomes which lock folks into conservative job and career choices.
I have been fortunate in that I am a member of a two income earning household and that our salaries have grown modestly since we acquired our home four years ago. Moreover, I have learned a lot about how to keep other expenses down and use various credit card signup schemes to pay for larger ticket items like vacations and electronics. I hope to share these strategies with all of you. We also significantly reduced our standard mortgage payment via a refinancing that has made it even more affordable.
So, I have no set out the goal of trying to eliminate our mortgage all together and own both our investment property and our primary residence free and clear.
Here is how my plan will go and then I will share the benefits of doing this:
My first goal is to payoff the mortgage on the investment property because it is currently only barely above water and, due to both my and my wife’s income being relatively high, we do not get a lot of tax deductions on this property even when fairly aggressively trying to lower our taxable income by contributing to retirement accounts. The current payment on this property is $867.00 before taxes. I believe I can safely contribute an extra $450 a month to this property, especially considering yearly rental increases at the market rate. According to this great calculator at http://www.ajdesigner.com/mortgage.php, I should be able to have paid off the property in 13 years by May of 2026, saving me about $67,000 in interest.
Similarly, I think I may be able to manage an additional $1200 a month to our primary residence. I have been putting about that much money into a cash savings account to build up our emergency reserve. However, I think that we probably have a margin of safety established with that emergency reserve already and I can safely divert some of that savings to this goal of eliminating the mortgage. With this plan, January of 2027 will be our last full payment to this mortgage. According to the online calculator this will save us $177,565.00 in interest over the life of the loan. Adding the two numbers up gives us an amount $244,565.00 in savings.
More importantly, though, will likely be the freedom that will come from having accomplished this goal of outright home ownership by the year 2026 when my wife and I will both be in our early to mid 40s. It will not be exactly a ton of fun, I will have to keep my cars longer, watch my pennies, and continue to play the travel rewards credit card signup game for vacations; but we can have a lot of flexibility for the rest of our lives with these payments eliminated.