Pay Off Your Mortgage – Ludicrous Speed Edition

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As I struggled and fought my way out of debt, it always amazed me how strong some of our beliefs take hold. “Common wisdom” like the normalcy of car payments, credit card debt, and a 30 year mortgage is so deeply rooted that rejecting any of them truly becomes an outlier mentality.

Today I want to talk about that last one – the 30 year mortgage. Everything about our mortgage lending system is set up to convince you that paying off your home should take decades.

home ownership

Photo credit: James.Thompson via Flickr

Some Quick Math

The average mortgage payment will be between $1,000 and $1,500 a month. That means you’re paying between $12,000 and $18,000 a year – most of that going towards interest.

The average household income for a couple was $76,959 in 2010 according to Statistics Canada.

Now figure out your cost of living expenses. If they’re anywhere around $59,000 (roughly $76,959-$18,000), then you might not be able to play. Realistically, you should have a LOT more money left over.

 

The Challenge

Now start being aggressive. Eliminate vacations and new cars. Cut way back on restaurants and other entertainment.

Get creative and think about extra sources of income. This could be one-off things like annual bonuses, investment income, or birthday presents. What about finding a second job or asking for a raise at your current one? Rent out your basement or start a home business. Do everything you can to reduce expenses and bring in more money, with the goal that every new dollar that appears goes towards your mortgage.

 

The Result

Imagine if, after all this, you had an extra $20,000 – $30,000 to put towards your mortgage every year. All of a sudden that 30 year timeline is laughable.

 

Seeing The Numbers

When my wife and I bought our first home, I loved checking our online statements the day after we’d made a payment. Our interest charges accrued daily, which meant after a payment they reverted to $0.00, and the next day I could see exactly how much we were paying PER DAY in interest. At the beginning I think it was somewhere around $20 a day. That’s crazy. Regular mortgage payments had minimal effect, with the next one being $19.85 or something.

But when we started throwing lump-sum payments at it things got exciting. Very quickly we were down to $15 a day, then $11, and soon it was $7. I’m not sure why, but looking at this number rather than our actual equity made me feel like I was winning a game, and it made it FUN!

The best way to track and plan your mortgage payments is by using a mortgage calculator, which can be very motivating and exciting.

Use these calculators, like the ones available at www.mortgagerates.ca to see what kind of effect small monthly payment increases and lump sum payment will make. See ahead of time how being aggressive will truly revolutionize your future lifestyle. Own a home by 35? THIS is true outlier living.

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12 Comments

  1. I wish our bank broke down the mortgage details like that! All we can see is principle outstanding. I get really excited when the paper statement comes after a lump sum payment, showing the remaining amortization and estimated interest charges for the remainder of the term 🙂 We’re so close. By Dec 31, 2013, we won’t owe the bank anything on our condo 🙂

  2. I don’t get to see that granularity on our statements, but I can still calculate the interest per day. I was going to start paying mine down, but I want to move in about a year and found no point. I would rather save.

  3. I like how you turned tracking interest payments into a motivational, fun activity. Personally, I’m not a home owner yet (due to some circumstances) but after reading many of great posts (including this one) about aggressive paying down of the mortgage, it motivates me to do the same in the future. I will be taking the same approach when I finally own my own home.

  4. My wife and I are all about paying our mortgage off early. Currently we are on track to pay ours off in 5 years!

  5. Make it a game, what a great idea. I could see myself totally getting into that. By doing bi-monthly payments my wife and I end up making 1 extra payment per year which cuts down on the length of the loan substantially. But finding extra income to throw at it may be a better idea.

  6. Never thought to look at the daily interest and use that as a motivation to lowering the mortgage. It’s like reverse thinking. Interesting post. Shared it on FB to see what the fans had to say!

    • CF says:

      I’ve actually done this for my student loans, though not for my mortgage. There’s something incredibly galling about a daily interest rate that motivates me to get it lower.

  7. Very inspiring post! We need to trim expenses and really get serious about reducing debt! Thanks for the post! Oh by the way Mr. CBB sent me 🙂

  8. Laura / No More Spending says:

    I love seeing our mortgage interest reduce quickly too – very motivating!

  9. Goldeneer says:

    I am on track to repay my new mortgage within 5 years. It’s difficult to remain motivated but you have found a way by looking at the daily interest charge.
    I will repay my mortgage by contributing an additional $3000/mo on top of the regular payments. My motivation comes from calculating every extra $750 saved is equal to one month of future mortgage payment.
    My eating out habit of $30/wk equates 2 months of mortgage repayments. This is a habit that will be quickly scrapped once I settle into my new home.

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