pay down mortgage early

The 30 Year Mortgage: That’s Not Good Enough

I want you to pay off your mortgage early. I know many of you are just starting off on your financial journey and you may be thinking along the lines of:

If only I could just get on a budget

If only I could stop living paycheck to paycheck

If only I could just pay off my credit cards

If only I could save a little more

If only I could…

 

pay down mortgage earlyI am here to let you know, that’s not good enough. I promise.

I started dating my wife in college, and early on in our relationship she had a goal to become a television news anchor. I knew nothing about the news and media industry, but I did know the University we attended had an entire college dedicated to Journalism. I also knew she wasn’t even majoring in journalism and there were only about six female news anchors where we lived in Phoenix, Arizona. The odds weren’t in her favor.

Three days after she graduated in 2004 with her B.A. in Communications (remember, not journalism), she landed a job as the morning show traffic reporter. She made a whopping $10/hr, worked out of a closet by herself 30 miles away from the actual studio, and talked into a camera sitting on a tripod. However, she was still on local television five days a week! At the time she may have felt like that was good enough, right? Wrong.

Most people would believe just to make it on television was in fact an impressive feat, but not for my wife. She was told that being a traffic reporter was a dead-end job and not to expect it go any further. She was told that no one comes out college in their young 20s and lands a job in news media in the 5th largest city in the United States. She was also told that what she had accomplished was good enough.

The biggest enemy of any goal is “The Good Enough” factor. When we start to believe this is Good Enough, we settle for what we don’t believe we could ever have.Click To Tweet

This happens the most with our money. We start to believe that good enough is when we stop living paycheck to paycheck. We train our minds to believe a low monthly car payment for the rest of our life is good enough. We believe if we don’t have money to send our kids to school, student loans are still good enough. We wonder if social security will be good enough, and we believe paying down a mortgage for 30 long years is good enough!

 

Back to the story…

A year after becoming the traffic reporter, my wife was offered a job as a reporter for the same news station! We were both ecstatic, however she still had not reached her goal of anchor.

Over the next few years she would be passed up two separate times for a promotion to anchor. She could have easily felt like she had come so far and accomplished a lot, but that was never good enough. Six long years after becoming the traffic reporter in the tiny closet, she got the phone call that she would be Phoenix’s new morning show news anchor. Goal accomplished.

The Good Enough in Personal Finance

You often hear the Dream Big motto in life. I don’t disagree with it, but in personal finance, why not just Do Big?

Here is why:

A recent poll shows that 70% of American families are living paycheck to paycheck. In addition to that, 64% of Americans cannot write a check for $1,000. This means 6 out of 10 people you know are living hand to mouth and are one financial disaster away from financial turmoil. In their eyes, Good Enough is simply making it to next payday.

Paying off Your Mortgage Early

Yes, I want you to pay off your mortgage early. I want you to go against normal. I want you to enter retirement without a mortgage and a huge nest egg to lean on. Is that really so bad?

When you first start living on a budget and paying off your consumer debt, it is hard.

 

Related: Getting out of Debt is Hard. Really Hard.

However, for many people it’s a pinnacle point. The point where you believe that once you have paid off your last debt inside your Debt Snowball (or Debt Avalanche), that you are done. You made it!

Yes, you have accomplished a lot, but so did my wife when she went from just a college student to landing the traffic job. She was on television five days a week and was now a recognizable face among the 3.5 million people in Phoenix. She could have easily said that was good enough, but she didn’t.

One of the biggest differences between wealthy people and poor people is wealthy people have a greater ability to think long term. Poor people don’t think past Friday.Click To Tweet

 

Ask yourself this:

What would life be like without debt? What would your life feel like without a mortgage payment each month?

When we paid off our consumer debt in 2011, a little bit of the Good Enough sunk in….until my wife knocked it right out of me! When we set our sights for true financial freedom, we meant it. We started looking at how in the hell we were going to accomplish a paid off mortgage, and realized it wasn’t as far away as we once believed. In fact, it felt more like it was just around the corner.

A Little Bit Goes a LONG Way

If you are at all interested in saving tens of thousands of dollars and years of bondage to the bank, then hop on for the ride to Awesome!

Bi-Weekly Mortgage Payments

You will save tens of thousands of dollars and a ridiculous amount of time by simply making bi-weekly mortgage payments. Instead of making one monthly payment, what if you made a half-mortgage payment every two weeks?

Example:

$250,000 on a 30 Year Loan @ 5%

Monthly Payment (Principal and Interest): $1,342

Biweekly Payment (Principal and Interest): $671

Total Interest Saved: $42,466

Total Years Saved of Making Payments: 4 years 8 months

Your Car Payment Costs You $112k

Many of you know that I Drive a Piece of Crap because of the opportunity costs with putting money in things that go down in value versus things that tend to go up – like your home. The average car payment in America is $488. Remember, this is $488 over a 66 month term for something that is dropping in value like a rock. What if you drove an older car and applied that payment to your mortgage?

Example:

$250,000 at a 30 Year Loan @ 5%

Monthly Payment (Principal and Interest): $1,342

Adding a Car Payment: $1,342 + $488 = $1,830

Total Interest Saved: $112,502

Total Years Saved of Making Payments: 13 years 1 months

I hope you like your car!

Buying on a 15 Year Fixed Instead of a 30 Year Fixed

There is a myth out there that a 15 year Fixed Rate Mortgage is double the monthly payment of a 30 year. Well, let’s prove this method of thinking to be complete crap:

Example:

$250,000 at a 30 Year Loan @ 5%

Monthly Payment (Principal and Interest): $1,342

versus

$250,000 on a 15 Year Loan @ 5%

Monthly Payment (Principal and Interest): $1,976

Results:

Monthly Payment: +$634

Interest Saved: $127,552

By paying an extra $634 per month (not even close to double) you would save $127k and 15 years of making payments to the bank. This doesn’t even take into consideration that you more than likely will get a lower interest rate for choosing a 15 year mortgage over a 30 year term.

Let’s get really crazy…..

What if you paid off your mortgage in 15 years and then took that same payment and added it into an investment account for the next 15 years. You would still get the same feeling of making payments for the 30 years, however the results are a little better 🙂

$1,976 invested for 180 months (15 years)

Annual interest Rate: 8% 

Value at 15 years later: $695,337

This is why settling for what society tells you is NORMAL is not good enough. This is what gets me excited and what also keeps me up at night. Why isn’t this stuff taught in schools, right? We just used simple math to determine that by switching to a 15 year mortgage (or paying a 30 year like a 15 year mortgage) could result in savings of $127k and earning of $695k. The results over a 30 year period of time is you having an extra $822k.

I repeat: Eight Hundred and Twenty-Two Thousand Dollars.

Good Enough doesn’t sound that good anymore, does it?

Get on a budget. Sell your crap and pick up a side gig to pay off your debt ASAP. Set aside money for retirement and start attacking your mortgage. It doesn’t have to be the way normal preaches it should. You deserve better and you have the choice to make it happen. We were paycheck to paycheck in 2011. Today we are 3 years away from a paid off mortgage. How is this possible? We said we would do it. No. Matter. What.

Curious to see how much you could be saving on your own Mortgage? Here is the mortgage calculator to show you how just a little bit extra goes a LONG way when laying down your mortgage early.

Simply enter in your: Principle, Your Annual Interest Rate, Your Term in Years, Extra Payment (optional…well, sort of)

 

Lovin’ this Idea? Well then…SHARE and Impress Your Friends!

As always, I first want to thank you for reading this blog because this means you are reaching for awesome with your money! I will keep putting content out there for anyone to gobble up and implement right away, however if you could help me out by sharing this post on your favorite social media platforms, it would mean the world to me! Just click on any of the social share buttons at the top or bottom of this post and you’ll be giving me a virtual fist bump, high-five, and a pat on the back. Thank you again and again!

-Chris Peach

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41 replies
  1. Josh
    Josh says:

    We are planning the bi-weekly method for when we move into our house this spring. we are hoping to get a 15-year mortgage on top of that, but our principal will be low with a 30 if that is what we qualify for only.

    Reply
    • Peach
      Peach says:

      Josh! It’s simply mind blowing to see what happens with your money by simply doing bi-weekly payments. If you do bi-weekly on a 15 year, then you are an official money bad @$$!

      Reply
    • Peach
      Peach says:

      Hi Cat! If being weird is living without debt and eventually without a mortgage, then let’s sign up to be weird together. I’ve never met anyone with a paid off mortgage that said, “I sure wish I was normal again” 🙂

      Reply
  2. Melissa
    Melissa says:

    I love reading your blog. I don’t believe in debt. I never really had any other than the mortgage and student loan. We paid off the student loan two years ago which was a big relief.
    This year, I starting working again after five years. I focus on paying off the mortgage. I was able to reduced 40 k this year! Our goal is to pay off the house next year.

    Reply
    • Peach
      Peach says:

      Melissa, you’re a rock star with money! Normal people don’t ever say “I paid down the mortgage $40k this year and plan to have it all paid off next year”! Keep doing what you’re doing because you’re going against normal – and that is EXACTLY what I would recommend! Great job and thanks for the comment!

      Reply
  3. Steve Stewart
    Steve Stewart says:

    My wife and I started with a 5/1 ARM because our realtor said it was the best rate. Thank GOD that I started to learn how money really worked before the 5th year ended and that rates dropped.

    In 2003 we did the math and decided to go against the grain: We didn’t take out a 30yr mortgage to try and pay it like a 15, we took out a 15yr and are paying it like a 13 (will be paid off on 12/14/15).

    Paying off the house early will enable us to do, well, anything we want! 🙂

    Reply
    • Peach
      Peach says:

      Steve! I’m impressed and love the fact that even a 15 year wasn’t good enough. The best Christmas gift you’ll ever receive will be a paid for house! Congrats to you and your family!! 🙂

      Reply
  4. Robyn
    Robyn says:

    When we pay our mortgage we have the option of full payment and paying more on principal (we add a little each month – emphasis on little). It does not give us the option paying only a portion of the full payment. Suggestions for how to accomplish a 2 payment a month plan or approach a conversation with the mortgage company?

    Reply
    • Peach
      Peach says:

      Great question Robyn! A biweekly mortgage is the equivalent of adding 1/12 of your monthly payment to to principle each month. If you added 1/12 each month, then you’re making a total of 13 full mortgage payments each year. Let’s say your mortgage payment is $1,200. Then 1/12 would be $100. Therefore, if you added $100/month to principle, you’re technically doing the same thing as biweekly payments. Save yourself a phone call to the mortgage company and just do this. It’s simple and has the same effect!

      Reply
  5. Jim Wang
    Jim Wang says:

    We have a mortgage with a rate under 4% and am not really in a hurry to pay it off. I see investments as a better use of the money and even with the big market run-up the last five years, over the course of 30 years we’re going to be far better off putting money towards the stock market than paying off the debt.

    I understand the feeling of freedom from debt, I paid off my $25,000 in student loans (which were also under 4%, this was about 10 years ago), but given today’s mortgage rates the money is likely better served working elsewhere. I don’t begrudge anyone paying down debt though, no one ever went broke paying down debt. 🙂

    Reply
    • Daniel
      Daniel says:

      You (and I) are counterpoints to this. Mortgage debt is “good” debt, because of the tax advantage conferred by it (even when subtracting the cost of not being able to a standard deduction) and that you don’t want your asset allocation overly on the personal real estate side of things (I personally want to keep it at about 25% of my overall asset base or less). Yes, it is a guaranteed return vs the notional better future return of other assets, but it really depends on your risk tolerance (and even then I get a certain amount of glee seeing the balance reduce every month).

      Reply
      • Peach
        Peach says:

        Daniel and Jim!

        Thanks for your comment, but I am going to have to say you’re wrong. Actually, my calculator is going to say you’re wrong and I am just agreeing with math. Here is why mortgage debt is not a “good debt” for you or anyone:

        Let’s pretend you and I both own a $200k home at 5%. We both have the ability to pay it off – I choose to pay it off and you do not. What does this look like?

        You get to keep your mortgage and send the bank $10,000 in interest payments (5% of $200k). At the end of the year, you get to avoid sending $2,500 to the Government because you get to deduct 25% (using 25% tax deduction) of the mortgage interest you paid. Result: You paid $10k to the bank to avoid sending $2,500 to the Government.

        I on the other hand pay off the mortgage. Let’s say we are in the same tax bracket of 25%. Since I am not paying a mortgage, I am going to lose out one getting the $2,500 back from the Government, however I am also missing out on having to send $10k to the bank! Result: I DID NOT pay $10k to the bank, and instead paid $2,500 to the Government.

        By keeping “good debt” you are saying you enjoy sending $10,000 to the bank so you can keep from sending $2,500 to the Government. How is this a good plan again?

        If you have a mortgage, then you better take that deduction each year. However, don’t keep a mortgage if you don’t have to because some broke finacial person told you it is “good debt”. They obviously need a new calculator.

        Lastly, you are very wise to be investing! I think a lot of people assume if I am telling you to pay off the mortgage that I don’t think you should invest. You need to be doing both. You need a combination of investing, paying off debt, and even spending on crap stuff too! Thanks for reading and thanks for the comments! 🙂

        Reply
        • Daniel
          Daniel says:

          It is also about liquidity. As I said, it would be nice to pay off the house, but in an emergency (and life can bring those, even if you have the standard rainy day fund) even a HELOC will only provide so much of the equity of the house to the owner. With the deductibility of the debt the other associated costs (at least in my situation (I have a 3k mortgage (3.75% Loan), 800 goes to principal deduction, so 2200 of that amount is reduced 1650 real cost + 200 HOA fee. I could not get a 3BR house/apartment in my area for a 1850 real cost…..)) keep the cost lower than what else is available. You recommendation to pay down is good for some people (maybe even most, since it helps those without investing discipline develop a significant asset), but if you are actually turning around and investing the money you would have used to pay down (vs consuming it as most people seem to do).

          It is a personal/comfort thing to keep my non-liquid assets to a marginal level (around 25%) of my overall net worth and thanks to the tax code and current interest rates that can be obtained for relatively low cost). Historically houses only appreciate at or around the inflation rate, so overall they are also the worst performing of any asset class that you could own and my personal taste for risk is fairly high (this topic is one of the lightning rods of personal finance, as there is a broad span of opinions on paying off early vs investing that capital (and a lot of that comes down to personal opinions on risk (like my decision to keep it at a lower percentage of my net worth))).

          Reply
  6. Jeff
    Jeff says:

    I know how terrible a long mortgage is from first hand experience. When I bought my first house I couldn’t afford it. I barely had a 5% down payment, I had a letter of employment that was very optimistic and I had six pay stubs due to a crazy amount of over time that verified the letter of employment. House prices were going through the roof where I live, something like $5000 a week and I wanted in. (Calgary, Alberta during the housing boom) Anyways I was approved for $325000 this way and found a place for $345000 that i just had to have so i signed up. I took out a mortgage and made sure I was “smart” about it and paid it bi weekly. The only problem with all of this is it was a 40 year mortgage. At the end of the first year I got my statement, $2000 knocked off of principle and $19000 towards interest. It was the worst financial decision I have made to date.

    If I were to ever give someone a piece of advice on a mortgage it would be two tiered. The first would be to NEVER buy a house that is “What you are approved for” and never buy anything over a 20 year mortgage paid bi-weekly. Thankfully in Canada the limit is now a 25 year mortgage.

    Reply
    • Peach
      Peach says:

      Jeff,
      Wow! Thanks for sharing. I really hope people scroll through the comments and read your testimony. It’s the same way here in the states – you’re always going to be over-approved for what you really cannot afford. Who in the heck comes up with this approval system any how? Oh yeah, the same banks that over leveraged themselves in the first place and are doing it all over again. Weird, right? And, interestingly enough, I was just learning from a Canadian about some of the mortgage terms you gave. Wow, and a little scary. I wonder who is going to be the first to go to the 50 year loan? Don’t tell me if it has already happened – what I don’t know yet can’t hurt me:)

      Reply
  7. Jennifer Helton
    Jennifer Helton says:

    I wanted to do bi-monthly mortgage payments (began this month) but saw that the first 1/2 payment went towards “principal reduction” in my account. After a phone call to my mortgage company (USAA), they said that they don’t do or honor bi-monthly payments. They will let me send another half payment and will fix the two payments for this month, but will not do it again. Frustration!
    Are there any known banks that will do bi-monthly payments, instead of going through a third party (which I’ve heard is expensive and they hold the payment till the due date anyway and then pay – no real benefit). Thanks!

    Reply
    • Peach
      Peach says:

      Hi Jennifer,

      It’s frustrating because you’re asking them for a common sense approach to paying off the mortgage early, and they can’t possibly do it. Give me a break – a large corporate bank can’t figure out how to apply a biweekly payment? I think they can and simply won’t.

      You don’t need them, you can do it all yourself. A biweekly mortgage is the equivalent of adding 1/12 of your monthly payment to the principle each month. If you added 1/12 each month, then you’re making a total of 13 full mortgage payments each year. Let’s say your mortgage payment is $1,200. Then 1/12 would be $100. Therefore, if you added $100/month to principle, you’re technically doing the same thing as biweekly payments. If your bank won’t allow you to add 1/12 to principle each month, then set aside 1/12 each month in a savings account and add a 13th payment at the end of the year. Yes, this is a little more of a hassle, but that’s because the banking system is…well…crap. There I said it.

      Save yourself another brain dead phone call to the mortgage company and just do this. It’s simple and has the same effect!”

      Reply
      • Jeff
        Jeff says:

        Jennifer, please keep in mind that bi-monthly and bi-weekly payments are two different things. A bi-monthly would be like the 1st and 15th of each month where bi-weekly is more like every second friday. A bi-monthly approach does not pay off a mortgage much faster because your yearly contribution is the same as a monthly (12 months x 2 payments a month) where as bi-weekly is a total of 13 months as Peach has explained in this post.

        Reply
  8. Kurt
    Kurt says:

    I rate paying off our mortgage early as the single best money choice my wife and I have made. With that done, our net worth seemed to explode, and we’ve never looked back. My personal recommendation is to get a 30-year mortgage but make payments as if it’s a 15-year mortgage. Yep, the rate will be a bit higher than just signing up for a 15-year, but you’ve got the flexibility–call it insurance–to ‘downsize’ to the lower 30-year monthly payment if your income takes a temporary hit or some other setback happens.

    Reply
    • Peach
      Peach says:

      Hi Jeff, I see both sides. I almost always push for a 15 year mortgage because the #1 greatest thing about a 15 hear mortgage is it pays down completely in 15 years or less 😉 However, I see your point too. My only rebuttal to a 30 year and paying it like a 15 is this – low probability. We are humans and we find a way to justify stupidity on a regular basis. Myself included!

      Reply
  9. Jerry Brown
    Jerry Brown says:

    Can you apply the bi-weekly payment technique to paying off your car loan? I recently moved into my mom’s house so I don’t have a mortgage. Maturity date is 8/17/2018 and I currently pay 360/mo

    Reply
    • Peach
      Peach says:

      Yes, but you probably won’t be able to set that up with your auto loan finance company. Here is what you can do: simply add 1/12 of your monthly payment to principle each month. Make sure you add it to principle or the finance company may just add it as an extra payment which means you are just pre-paying interest. No bueno. Anyhow, if you make 1/12 extra payment a month, then you are making 13 full monthly payments in a 12 month cycle. This is the exact same thing is paying half payments bi-weekly. Great question 🙂

      Reply
      • Jerry
        Jerry says:

        Thanks a lot for responding @Peach. I see their is an option on the Nissan payment site to input how much you want to go towards the principle!

        Reply
  10. John
    John says:

    We were blessed to be able to pay off our mortgage several years ago, just before the stock market crashed. Obviously for the first few years, we were happy we paid it off as we would have suffered large losses in the market. Now that the market has more than recovered, we probably would be ahead (financially) if we had NOT paid off the mortgage and left the money invested.

    What’s interesting is that even if that is the case (I’ve never actually calculated it), I have NO regrets about paying it off early. One can argue historic returns in the market exceed the interest rate paid on mortgages. However by paying off the mortgage I have taken the investment risk off the table! Sometimes the psychological benefits out way the math! As they say, personal finance is 80% personal and 20% finance.

    We continued to “make the payment” but into our investments and doing so has been great (as we were DCA-ing into the market recovery).

    Great post. Thanks for sharing it.

    John

    Reply
    • Peach
      Peach says:

      Hi John,

      Thanks for reading and congrats on a paid off mortgage! Did you know you are Weird? That’s a great thing! And, you’re right about the “risk” being removed. So many times we don’t think about the risk because it’s not something we feel when things are going good. However, you’re the prime example of having a paid for house in the down market and the risk being non-existent in your situation. You’re a Rock Star! Nice work John.

      Reply
  11. Jaymee
    Jaymee says:

    I’m glad I read this! I almost bought a house earlier this year but for mostly the wrong reasons… Just to say that I bought my first home at 23 years of age. That would be my “good enough”. However I failed to really understand the numbers and what having a $407k mortgage would mean while I’m still in debt repayment mode. We had an epiphany on the last stage of buying that home and decided we could probably wait a little bit longer, save up a bigger down payment (we had only 5%) and work down our debts more. Glad we did! Our economy coming down has turned real estate into a buyers market so we’re in a good place 🙂 No “good enough” for us!

    Reply
    • Peach
      Peach says:

      Hi Jaymee!

      Thanks for sharing this. I love it because it is EXACTLY what young people need to be seeing. A bank goes out and approves a 23 year old for $407k mortgage with little money down and then we all wonder why it didn’t work out as perfect as we had all planned. Good for you for going against normal and being patient. You are going to be so much better off without the heartache of being “house poor”. We were once there and I would say it was one of the lowest moments in our lives. Thanks again for sharing!

      Reply
  12. Brett
    Brett says:

    Great article! I stumbled on your blog this morning from another site. This hit home big time for me! We paid off all our consumer debt (student loans, car etc) back in March, total of $42k in just 14 months thanks to Dave Ramsey. The beginning of November we closed on a refinance for our mortgage. We went from a 30 yr fix at 5.25% (with 24 years left) down to a 15 year fix at 3.6 percent. Our goal has always been to pay this thing off as early as possible and truly be free! Thankfully we live in a low cost of living state (West Virginia) and our house is older, but plenty big. So our balance right now is $100k. We hope to knock it out in a few years!

    Reply
    • Peach
      Peach says:

      Hi, my name is Brett and I paid off our $100k mortgage in ______ years

      Wow, good for you Brett (and you need to start practicing that line above). 🙂 Just thinking about the debt you have paid off in the last year and having a paid off mortgage in a few more years makes me smile from ear to ear! Congrats and thanks for sharing.

      Reply
  13. Mr Hairy
    Mr Hairy says:

    Great post. There’s nothing more satisfying than watching your mortgage and the amount of money you’re gifting (interest) to the bank shrink.

    Reply
  14. Chris
    Chris says:

    We paid both our houses off early. We were in our 20’s and paid our house off in 3-1/2 years. It was only $30,000 but we did owner financing and the owner told us he would take some off the principal if we paid it off early. I think he ended taking off about $1500. We also paid our second house off early. I had a good job and tithed 10% and paid the rest on the house. I “surprised” my husband with a “fake check” for our 20th anniversary for $140,000. That was how much we had saved by paying our house off early.

    Reply
    • Chris
      Chris says:

      I have been reading some of the comments above. A few years into our second loan, we refinanced for an adjustable mortgage. They always say don’t do these, but the interest rate was 1.875% and the highest it could ever go was as high as our previous loan. I would print an amortization sheet out and send payments whenever I wanted to. I didn’t worry about bi-monthly, bi-weekly, etc. Then in another year, when the rates were adjusted, I would print another amorization. Even though the interest rate went up, our required payment went down, because we had paid so much off. We bought our house about 3-1/2 years before I got my good paying job and I paid the house off four years later. I just thought I would mention this since some had asked about bi-weekly, bi-monthly, etc. The most important thing is to be sure your mortgage company does NOT have a pre-payment penalty.

      Reply

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