Years ago, I decided to pay off my mortgage early and managed to clear it in 15 years. As someone who embraced the FIRE movement early on, I highly recommend considering this path. Despite the allure of negative real mortgage rates, the peace of mind that comes with being debt-free is unmatched. Life just becomes more manageable without a mortgage hanging over your head.
Let me walk you through my journey and the advantages of paying down your mortgage sooner rather than later. After purchasing my primary residence in 2014, I found myself juggling four mortgages. While three seemed manageable initially, adding a fourth felt overwhelming, prompting me to pay one off.
The reality is, not everyone is comfortable with holding multiple mortgages, even if it can enhance net worth in a booming real estate market. Personal finance is deeply personal, and risk tolerance varies widely. Some people avoid debt entirely, living strictly within their means, which is admirable. Others, however, stretch themselves too thin, succumbing to lifestyle inflation and taking on more debt than their income can support.
The process of acquiring and then eliminating debt can be strangely exhilarating. There’s a thrill in purchasing with borrowed money, but paying down each dollar of debt can feel equally rewarding. This post will delve into my thoughts on the ideal mortgage size, my first mortgage’s history, why I’m keen on paying it down early, and my new strategy moving forward.
The ideal mortgage, according to some standards, should not exceed the government’s deduction cap, which currently stands at $750,000 plus an additional $100,000 for a Home Equity Line of Credit (HELOC). However, I wouldn’t recommend a HELOC due to its higher interest rates and the temptation to overspend.
Mortgage rates are historically low, making large interest payments less likely. For instance, with rates below 3% for some adjustable-rate mortgages and under 4.5% for fixed-rate mortgages, you’re looking at a maximum of $45,000 annually in interest on a high-end scenario. Spending no more than 30% of your gross income on housing is a good rule of thumb, making an income of around $200,000 ideal for managing such expenses comfortably.
My first mortgage was on a modest two-bedroom condo in San Francisco, bought in 2003 for $580,000. I put down 25% and secured a mortgage at about 5% interest, which I’ve since refinanced to a lower rate. Although it was my first property purchase, the urge to buy more was strong, especially as the market values increased.
Over the years, I’ve employed various strategies to pay down my mortgages, from refinancing to making extra payments during financially robust times. My new strategy includes using consulting income, reallocating investments, and applying rental income towards principal reduction.
In conclusion, while the decision to pay off a mortgage early is personal and depends on several factors, the freedom and financial flexibility it offers can significantly enhance your quality of life. Whether you’re planning to retire soon or simply want to reduce your financial burdens, consider setting up a structured plan to pay down your mortgage sooner. Remember, every situation is unique, so tailor your approach to fit your financial landscape and comfort level.
