Two weeks ago I did something a little scary ... something some might consider crazy even. I paid off my house. Yep, 12.5 years after buying my home it's truly mine and I'm debt free once again. Yay!
After a couple years of debating it, I finally stopped messing around and paid off the house mostly because I was pissed off. Pissed off that the newly passed tax bill once again favors the wealthy and big business over those who actually need assistance. Pissed off after hearing some politician's comment about how they were giving the poor more money to go spend. Money which they think will come back to the wealthy as profits. I vowed to save that extra money and put it to work for me instead. And it firmed my resolve to stop paying interest to a bank.
So I finally did it, went to the bank, wrote the biggest personal check I've ever written and the house was mine. It was kind of anti-climatic actually, but on the drive home I started feeling pretty good about the whole thing.
How is paying off a huge debt crazy? Well most conventional finance and investing advice says not to pay off a low interest loan like mortgages and instead invest it where you can make more. But investing isn't a sure thing and there's no way I would have ever put that same amount into the market. Definitely not now and probably not ever.
Don't get me wrong, I do invest. I regularly invest my retirement savings because it's the only way I'll ever be able to retire. In fact I significantly increased that savings rate last year and bumped it up a little more this year. But I like to spread out the risk and keep some in safer savings vehicles as well.
Also, at 5.7%, my mortgage rate wasn't as low as some. I probably should have refinanced at some point. I did look into it two years ago, but at that time the payoff was so long that it seemed better to just pay it off instead.
Even after paying off the mortgage, I still have an emergency fund that can cover 2+ years of expenses. I'd definitely recommend building an emergency fund and retirement savings first before tackling the mortgage.
I planned to pay off the mortgage all along because I didn't want to have to pay the bank all of that interest. So I started paying extra early. According to my records, my first extra payment was four years after purchasing the house. The first year I paid the equivalent of one extra payment, as I did the year after that. Then two extra payments. Then it varied. Last year I really started getting serious culminating with the final payoff.
So what's next? Well, I want to build up my savings a bit because my car is 18 years old and at some point I'm going to want a newer one. Then, with a paid off house and comfortable emergency fund, I can start funneling even more towards retirement savings.
Do you prefer to pay off debts or invest instead?
Wow, congratulations! I was also counselled by a financial advisor to put my money into the stock market instead of paying down the mortgage. I'm glad I didn't listen. What make of car do you own that has lasted 18 years?! Do you put a lot of money into its maintenance?
ReplyDeleteCheers from Dar
Thanks Dar! I have a 2000 Honda Civic with just under 130,000 miles on it. It's been a good car.
ReplyDeleteI haven't spent a lot on maintenance, but there has been routine maintenance. I've been very lucky because the boyfriend, and sometimes his mechanic friend, fixes everything so I have only had to pay for parts, sometimes a little extra for their work. It makes a huge difference of course!
Still, I'd hesitate to take a long drive out of town these days so I've started thinking about something new.
Congratulations!!! It's such a feeling of freedom, isn't it? Paying off my house did go against "conventional wisdom" - but for me, it was a hugely freeing decision. It allowed me to focus on wealth rather than income, and not having that bill to pay every month really opened up a whole new world of possibilities.
ReplyDeleteAnd three cheers for the Honda Civic! I'm still driving my 1990 Civic wagon - and it still has less than 90K miles on it. Not sure if that's evidence of being a frugal environmentalist, or just a person with no life, but either way, it's a pretty good deal!
Thanks Cat! It is a good feeling, although I still owe $300+/month in property taxes alone. Oi! So I don't know how free that makes me, but it does cut a good chunk out of my monthly budget.
DeleteA 28-year-old Civic, wowza! They should put you in a commercial. Now I have to ask you Dar's question, does it cost you much in maintenance?
Yikes! That's a lot of property taxes! I think Denver's property taxes must be really low comparatively speaking because my combined monthly total for taxes and insurance is under $200/month.
DeleteIn terms of the car maintenance... well, it would probably cost more if I actually drove it. But since I average about 50 miles a month, I don't have many costs. Of course, the mechanic told me 5 years ago that my transmission was going and that I'd probably need to have it replaced soon. But honestly, it hasn't really deteriorated at all since then... probably because I don't drive it much. I should take it in for an oil change though, and I will probably need new tires and a new battery before next winter - there's still plenty of tread, but apparently they deteriorate just from age. I probably should have done it this year, but our winter was so mild that it hardly seemed worth it. I did have to charge the battery once, but now that the weather is getting warmer it will probably be OK until next year. We'll see though...
Yeah, I'm realizing our property taxes are very high unfortunately.
DeleteOur mechanic friend told me gaskets and things will start breaking down in my car and needing replaced. Getting to some of them in complicated. It's already started with CV joints, struts and some other things needing to be replaced. Still sometimes I think I should just keep my car, but I don't like worrying that it could break down at any time, which I've started to do. So I guess it's going to be time to move on soon.
This is so great! I wish we had cash to pay down our mortgage (I think we still have $167k left at 3.7%), but I don't even have a retirement account started. We're just banking on my husband actually getting his promised pension when he retires. Kids and the house and day to day stuff is getting in the way of us saving anything extra. We at least have a good savings built up, but all it takes is something major to drain that. My husband is already having to pickup at least 4 over time shifts between now and August, so we can pay for all of us to go to my brother's wedding (which my mom already lectured me about how we ALL have to go or else, even though it will likely cost us around $2500-3000 for a 4 day trip).
ReplyDeleteThanks Megyn! It definitely helped that I had a small mortgage to begin with, for a small house. We wouldn't fit here with kids. Sometimes I wish I had more space but the cost and extra time it would require keep me from making a move. Plus this place more than meets our needs.
DeleteI know what you mean about the savings account. I'm happy with the size of my emergency fund, but it takes a lot longer for me to build that up than it would to spend it should I lose my job. It's easy to see how people get in trouble if a crisis hits.
Good luck on the wedding front, that's quite the expense for your family. It's tough when it's close family though.
Congratulations. It is liberating to be without debt. I think you made the right decision. Big Banking is a scam.
ReplyDeleteWhen I paid off my student load the interest was around 10%. I retired it as fast as I possibly could.
Thanks Greg. Wow, 10% interest on student loans sounds so high, though I know we've been experiencing historically low rates for awhile. Paying off debt definitely feels good.
DeleteCongrats! I love hearing stories like this! We pay extra on ours but sadly still owe more than six figures so it'll be some time before our mortgage is done. I think the best part will be knowing that if something goes wrong (like one of us loses our job), that our monthly expenses will be so much lower and easier to afford.
ReplyDeleteWow this is amazing, I remember you commenting on my plans last year and now you've done it. What a great relief it must be!!
ReplyDeleteThanks Sarah! Your previous comment asking me to write about it when I did it inspired this post, so thanks for that.
DeleteI was super nervous before paying off the loan, all the way up until I handed over the check. What if I needed that money? But since then it's felt great and I've had no worries. Hopefully I can continue to say the same in the future! Overall, I'm still happy with this decision.
The argument to not pay off debt always rings a bit false to me. !- I hate owing anyone. 2- the debt interest is guaranteed, while income interest is potential and not at all guaranteed.
ReplyDeleteGreat job paying off that cute house!