Howdy.
My wife and I paid off our mortgage last year, 12 years into the 30-year loan. We did this as a key part of our retirement strategy, so I thought I'd post about it here; those who migrated from the old digs might remember me posting about paying down a mortgage vs. saving for retirement, including when we first decided to really pick up the pace. I thought I'd post about how we fell about it now, and if we'd do it the same way again.
First, a caveat: I'm not advocating everyone do this; a LOT of variables go into this kind of thing, as with all savings strategies. I just want to explain why it made sense for us.
As light background, I grew up in a household that was pretty much crushed by debt, especially after my parents divorce. I went into finance in college, and came out with a strong predisposition against debt as a result. I remember my mom talking about how she would try to pay a bit extra on her mortgage each month, as she had worked out how much faster she and my dad could pay off the house if the did. That never panned out, but the financial lesson seems to have stuck.
I went into the loan wanting to pay it off early, but never at the (full) expense of retirement savings. My wife and I roughly split up saving for retirement, and other savings, and paying the mortgage down as a 75/25 split, because we knew how important it was to start retirement savings early. (My wife and I actually started our Roth IRA's when I was in college, with $25/month going into each.) Every time I got a raise, we put a bit more into every bucket, including paying down the loan.
I basically made our mortgage payments the fixed return portion of our savings strategy: the return was the rate of the loan, which started off over 6%, refinanced down to ~4.5% a few years later, after the crash. When we refinanced, we decided to just keep paying the same amount on the loan we had been all along, so that little bit extra every month turned into a LOT extra. And that started to add up fast. I decided that 4.5% return was decent enough to make
some financial sense, even if the raw math favored investing over the long term. We are 100% invested in stocks in our retirement funds, so that reasoning helped me consider our "portfolio" of savings/debt payments as somewhat balanced.
The other angle was, I wasn't sure I wanted to keep doing what I was doing all that much longer. I liked the idea of changing careers, and possibly really reducing our income, without having to worry about a mortgage payment. About four years ago, when I started thinking about perhaps moving on, we realized we could take the company stock we got each year and instead of putting it in our IRA, we could basically pay off the house, potentially freeing me up to get out of corporate America.
That's basically what we did, though we paid it off a year earlier by drawing down the number of shares of stock we were holding onto.
Now that it's done, I'm going to try and work another 3 years, during which we can power-save, and then semi-retire.
On balance, I think it's worked out well and I'm not sure I'd change much. We definitely lived more frugally than we might have otherwise, and skipped on a few big family vacations we might have taken if we could do it over again. And retirement would be much larger now, given what the markets did coming out of the great recession. I think we might have done for a slightly different balance if we did it all over again.
But now that it's paid off? We are not sad about having no mortgage each month. Not sad at all.
I kept two graphs as we tracked our progress. The first is just a comparison of the principal we'd paid as compared to the normal 30-year pace of the loan.
You can see when we started tossing stock into the loan around 50 months in, and really picked up the pace around 70 months in. (We made 90 total monthly payments on this loan; this view excludes the first couple years before we refinanced.)
This graph is the monthly composition of the core loan payment - how much of each payment was principal vs. interest. What I liked about it, that vertical line formed by the principal line would move to the left each time we put any extra on the month. When I did our month-end finances, I looked forward to that line moving over a bit; it became oddly, hugely motivating, seeing progress happen every month.
Anyways. This was one of our big financial life goals, and it's going to help with our overall retirement plan. One of the lessons here is - when you make a long-term strategy, stick with it. Plans made for years out seem abstract now, but this came up on us much faster than we thought, and the impact is quite real. Stay the course. (RIP Jack Bogle.)