Mar 26, 2009

Becoming debt-free: Sometimes you just need to believe it's possible

We are very close to paying off my remaining student loan, which would leave us with the mortgage as our only debt. For some reason, I had assumed until today that we would shift what we've been paying on the student loan into savings for retirement and the kids' education. It had simply never occurred to me to wonder how long it would take to pay off the mortgage if we continued the debt snowball.

Until today.

Out of nowhere, I began to wonder would happen if we applied the student loan payment to our mortgage. I was shocked to see that we could pay off our mortgage in just over six years.

So that's the new plan: Pay off the mortage by mid-2015. We'll save over $100,000 in interest. I was a little concerned that with our new plan, refinancing in January may have cost us money, but I'm happy to report that we'll come out ahead by $5,000 (i.e., if we hadn't refinanced and started accelerating the mortgage in a few months, we'd have paid $5,000 more than we will now).

Of course, nothing is set in stone. The new plan presupposes that we'll be sending the boys to public elementary school or a very affordable private school, and that Marc and I will hold on to our jobs. With the current state of the economy, I don't want to take anything for granted. But even with the extra principal payment each month, we'll still be able to save, as we have done while paying off our non-mortgage debts, so we will remain financially stable.

And the end of being in debt is in sight!


Anonymous said...

The great thing about overpaying your mortgage is that in the case of an emergency - you can just stop that overpayment. It gives you a lot of flexibility, while building up that equity.

Mommy Shoes said...

I would be curious to know if paying off mortgage-debt balances with the tax deduction for the interest. Honestly, without that deduction, we would be paying significantly more in taxes and, as a result, I have no desire to significantly pay down our mortgage debt.

Anonymous said...

That is great news! Very excited for you. :)

Anonymous said...

Yea for you!!! I'm so happy for you to be paying off the house. We are trying to pay ours off too.

Take Care,


Jennifer said...

That's great. I hadn't thought about doing that, but I will now.

I'm always stumped when people use a blanket statement and say that nobody should pay off their mortgage because of taxes (not that anyone has here, but you definitely hear it).

If I pay several thousands of dollars in interest each year on my mortgage, I'm not deducting dollar for dollar on my taxes. Now, that interest may allow me to itemize and deduct other expenses such as real estate taxes, charitable contributions or health care expenses. If you couldn't itemize without the interest, they might be right. But, people also need to compare the standard deductions to their itemized deductions.

Personally, my itemized deductions are only slightly higher than my standard deductions. If I paid off my mortgage, I'd no longer itemize, but the difference between itemized and standard deductions are less than the interest we pay on our home.

Michelle said...

THat is amazing!!! We are debt free down to only having a mortgage - and we refinanced this year, from a 30 year (with 28 years left) to a 15 year. I was so happy to have paid off 13 years of mortgage!

I would love to not have a mortgage, even though everyone says that helps you with your taxes - but so what!? Won't it help me to have all the additional money freed up every month?

Kasey said...

That is awesome!!! Way to go. I think you are being very smart!!!

Chief Family Officer said...

Thanks everyone! I'm pretty excited about it.

The tax question is an interesting and legitimate one, although at least in my case, the math alone doesn't tell the whole story. I think there's something to be said for being debt free, regardless of tax consequences.

I haven't run the numbers but now that it's come up, I'll ask our accountant to do so sometime in May - I want to let him get through tax season first. My gut instinct tells me that our tax liability will go up, but that the increase over the years won't be greater than the $100,000 we'll be saving in interest.

And, a very important consideration for us is the flexibility that not having a mortgage payment will give us in terms of increased retirement savings and especially, paying for the boys' education. I have no idea where we'll be in six years with regard to the school situation, and having that extra cash flow will increase our options.

Kristy @ Master Your Card said...

I'm so glad you thought of paying off the mortgage! A lot of people don't and oftentimes that money doesn't end up in either savings or retirement, but gets spent. Not that I think that would happen in your case, I'm just saying that I'm glad you thought of knocking out the mortgage. And to save yourself $100k in interest is incentive enough in my book!

Congrats to you and I hope your plan goes well!

MB said...

Oh how I would love to have our mortgage paid off! I run the numbers all the time just to remind myself what is possible. I'm such a nerd about it.

My question is, with this new plan, do you still plan to hold back on retirement savings as well? I read in another post you were either stopping or easing up on (can't remember which) saving for retirement so you could knock out the school loans in a year.

So, are you still easing up on saving for retirement in lieu of paying down the mortgage early?

Thanks...enjoy your blog!

Chief Family Officer said...

@MB - We'll be increasing our retirement savings once my student loan is paid off - the money that we've temporarily diverted from retirement savings is currently going into savings, and is not added into our monthly debt snowball. The snowball will stay the same, it'll just get turned toward the mortgage :)

Tara said...

That is excellent--we have work to do on the credit cards of our debt snowball, but I've already played around with the mortgage numbers--it is SO exciting to see how quickly it can actually be done.