Brian Preston from The Money Guy Show cautions young investors not to pay off the mortgage too early.
Here’s why he feels passionate about not rushing to have that paid-off house.
The Money Guy Show: https://www.moneyguy.com/
Paying off your mortgage early is an idea that I absolutely love!
But I know it's not for everyone ...
I decided to look at the disadvantages of paying off your mortgage so people can see both sides of the argument and make the best decision for them.
Also, we hear from Juan from Michigan whose simple term life insurance policy changed the course of his family's life.
Are you wondering if it's better to pay off your mortgage, save or invest your extra cash right now?
So is Samme from Chicago!
I have some thoughts that I share with Samme on what to do with her money now that she's debt-free and starting to build wealth.
Keith Robinson shares his journey to becoming mortgage-free and offers tips for anyone who wants to pay off their mortgage early. We also discuss how complete debt freedom gives his family security during a financial crisis.
Our question of the month comes in from Mike:
I saw the Business Insider article about you paying off your mortgage early.
We’re in a similar situation. With $228,000 left on our mortgage, our plan is to pay it off in 6 years. We’re looking for advice and shortcuts!
That’s awesome to hear you want to pay off your mortgage early, Mike!
You’re looking for steps, shortcuts, and advice on how to pay off your $228,000 mortgage in 6 years … Let’s do this!
This is something that you have already started! Nice work.
Let’s make it a SMART Goal. That's a goal that is Specific, Measurable, Achievable, Relevant and Time-Based.
Take some time playing around with this mortgage payoff calculator.
By using this calculator, you can insert:
Let’s plug in some fictitious numbers for Mike:
That will reduce your 15-year mortgage to around a 9-year mortgage. And you’ll save around $31,000 in interest!
Now those numbers may not match your situation but see what you can do, by using the calculator, to get close to your 6-year goal. And if it seems a bit crazy to pay it all off in 6 years, maybe look at 7 or 8 years instead.
Have fun with the calculator and adjust your plan accordingly.
Let’s say, you’ve played around with that calculator and it doesn’t seem like 6 years is feasible but you still want to make it happen. The first thing you can do is look into reducing your expenses so you have available cash to throw at your mortgage principal.
Here are 5 areas to consider when it comes to reducing your expenses:
It's amazing how much you can save by calling up your cable, cell phone, and insurance providers and asking for a deal. There is high competition within these industries and they are looking to retain their customers.
If they don't make it easy for you to save, find competitiv offers and ask your current provider to match the offer.
By pre-paying your bill you can save quite a bit more money. We recently did this with Verizon and saved around $30 per month.
We're big fans of Aldi in our house. They helped us to save around $300/month when we switched over from Kroger.
All the dinners, drinks and lunches start to add up. See if you can cut back and save by packing your lunch for work and making more meals at home. This could be a much healthier choice as well!
If you're able to take on more of the risk today with a higher deductible, you could pay much lower premiums today. Make sure you have adequate savings to cover the deductibles before switching.
If you do, signing up for a high deductible health plan with an HSA would be a great way to save for your future health care expenses and save you money today.
Perhaps you’ve reduced your expenses as low as you can but you still want to crush that mortgage early and hit your 6-year goal. The other place to find more money is by increasing your income.
This requires time, dedication and teamwork with your partner. Consider these 5 ways to increase your income to pay off your mortgage early:
If you’ve been working hard at your job and exceeding expectations, start a conversation with your employer about increasing your salary or hourly rate. If it’s not possible today, get them to help you outline steps to help you get there in the near future.
If you’re married, your partner may be working as well. Consider what a raise in your partner’s income would do for your family.
If putting in extra hours at your job is an option, consider doing it for a season. Your overtime may just help you become mortgage-free by your goal date.
Finding a side hustle is a great way to earn extra cash. If you’re able to make money through a hobby or passion of yours, that’s even better.
A lot of us have things lying around our house that have value. They can be sold on Facebook Marketplace for extra mortgage principal crushing money and the person buying them at a discount becomes happy too!
When we craft and live on a budget we are telling ourselves that we are in control of our money. We are telling our money what to do.
With a goal of paying off your mortgage early, a budget is crucial.
If you don’t want to use an online tool, you can easily craft a budget using a spreadsheet. Just set your typical income at the top and then start lining up your expenses.
Here's a snapshot of our budget from May 2016 (one random month in the midst of our mortgage payoff).
|Expenses (Rounded to nearest $50)|
|Mortgage (includes taxes and insurance)||$1,900|
|Lawn Maintenence (Cutting and mulch)||$200|
|Total "Home" Expenses||$3,200||40%|
|Total "Food" Expenses||$900||11%|
|Fuel (for 2 cars)||$300|
|Service & Parts||$50|
|Total "Transportation" Expenses||$350||4%|
|Roth IRA Contribution||$200|
|529 College Savings||$500|
|Total "Financial" Expenses||$700||9%|
|Bills & Utilities|
|Water Bill (quarterly)||$200|
|Total "Bills & Utilities" Expenses||$650||8%|
|Gifts & Donations|
|Total "Gifts & Donations" Expenses||$600||8%|
|Kids Camps & Field Trips||$300|
|Total "Kids" Expenses||$500||6%|
|Weekend Fun (Eating Out, Movies, Drinks, etc)||$350|
|Total "Entertainment" Expenses||$750||9%|
|Toiletries / Home Misc||$50|
|Total "Shopping" Expenses||$350||4%|
Your goal is to have all of your dollars accounted for in the month. This way you’re making your money work hard for you.
To keep yourself on pace for your mortgage payoff goal, set up a recurring payment toward your mortgage principal. You can do this directly with your mortgage company through their website.
Be sure to specify that this money is for additional principal payments and not for interest. Sometimes the mortgage companies make the mistake of applying it to next month’s interest payment instead of your principal. Convenient for them and not for you.
If you prefer to write checks with your payments, make sure to specify on the memo line and with a note that this money should go toward the principal balance only.
There will be times throughout the year when you might get some new-found money and you’re going to have to make a decision on what to do with it. This can be from:
It’s important to have a plan before this money arrives so it doesn’t magically disappear. Decide with your partner how you want to use new-found money.
During your mortgage payoff period, 100% of new-found money can go toward the mortgage principal. Or you can decide to only use 75% for the mortgage principal and 25% is for family vacations.
Or you could do 70% mortgage principal, 20% fun and 10% charitable giving.
Find the percentage that works for you and plan ahead because this extra money can make a huge impact on your mortgage payoff process.
If you’re working with your spouse on this goal, make sure you’re meeting up at least once per month to stay on top of your budget and review your progress. Having someone to hold you accountable is so important. If you’re both on the same page with the goal, it can be more fun and enjoyable.
When you hit a special milestone, make sure to celebrate that as well. For example, if your mortgage is at $228,000 right now, set up a memorable celebration when you hit the $200,000 mark!
Maybe there’s an ice cream place you love to go to or maybe this night calls for investing in a babysitter for a night out. You’ve worked hard. Celebrate.
If you have kids, include them in on the fun as well. When I interviewed the McCoy Family who paid off $250,000 of debt, they used a coloring sheet that tracked their mortgage payoff process. This helped them to include the kids in on the fun!
Each time the family would pay off a certain amount of the mortgage principal, the kids would color in a brick on the house. Eventually, the kids were able to color in the entire house and they were mortgage-free.
The kids had fun and the parents had fun too. This experience is something that the McCoy kids will never forget. And you know they will be shooting to be mortgage-free when they get older as well.
When you finally get to that big day when you’re mortgage-free, make sure to celebrate. You have just done something incredible that not a lot of people do.
Here are some celebratory ideas to think about:
This moment is important and needs to be commemorated.
Afterward, take some time to keep dreaming with your spouse about what’s next in your life. What will you do with the extra money?
This could be thousands of extra dollars per month!
How could this money change your life?
These are the questions that help us to start living out our dreams. Without a mortgage, your options start to open up. Your eyes start to see a little wider and the future doesn’t seem so far away.
I hope these 10 steps help crush your mortgage this year Mike. $228,000 is a lot of money, but with enough planning, determination, and partnership from your spouse, you’ll get there.
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“A life spent making mistakes is not only more honorable, but more useful than a life spent doing nothing.
George Bernard Shaw
Christie recently paid off her mortgage and reached Dave Ramsey's Baby Step 7. She owns a paid-for rental property but is considering selling it and investing in the stock market instead. I share my investment options after you pay off your mortgage.