The State of the Mortgage – June 2016

My husband and I went under agreement on our house two and a half years ago.  We felt like we had hit the jackpot – a beautiful house in great shape, no foreseeable need for any cash outlays, a nice yard, a big driveway (trust me, this is an asset in our area), and walking distance to the grocery store, the wine store, the library, a movie theater, restaurants and bars, the dry cleaner, the track and the elementary school (I believe everything is listed in order of importance!).

The house was listed at $449,000 and we offered $440,000.  The sellers came back at $444,000, and — brilliant negotiators that we are — we took it!

We immediately went about locking in our 30-year fixed rate.  There were rumors that the Fed was about to do all sorts of things, so it was priority #1 to lock in that rate!  We worked with an awesome mortgage guy and locked in at 4.25% with no closing costs.  We put 20% down, and our 2014 projection looked something like this:

We were $355,000 in debt!  That was a shock.  From positive net worth to super negative in a single day.  When I saw the breakout of our first payment, it was a major bummer, to put it mildly.  Only 28% of the payment was going towards the principal – AAAAAAGH!  The screenshots above are from an awesome mortgage calculator website, by the way.  This website was quickly added to my favorites.  I started playing with different extra principal payment scenarios and quickly realized that we could easily shave a number of years off the mortgage term with rather small extra monthly payments.  “OK,” I reasoned with myself, “this isn’t necessarily so bad.  There’s no reason we need to wait until we’re 64 years old to make our final mortgage payments.”

So it went, for the rest of 2014.  We’d make some extra payments here and there, and meanwhile we got married, and also bought a car (with cash, definitely with cash!).  The mortgage was annoying but it wasn’t my primary concern that year.

As the weather started to get colder, my thoughts turned back to the mortgage.  Sure, we had made a few extra payments here and there.  But could we do better?  I started to run more extra payment scenarios.  It was around this time that I started looking at personal finance blogs and listening to podcasts, and taking a more critical look at our spending.

Well, my spending.

My husband really didn’t spend much money.  He’d agonize over a $10 purchase, then leave the store empty handed.  If he found a pair of shoes he liked, I’d suggest buying 2 pairs (or even 3), and he’d go nuts, “Nicole, I don’t even know if I’ll buy this one pair – I’m not buying 2 pairs.  And 3?  No, absolutely not, that’s crazy.”  And the shoes would go unbought.

His big expenses were gas and the gym.  $10/month for Work Out World.  I didn’t even bother checking with him on his upcoming expenses when I’d lay out our weekly and monthly projected expenditures.  I still don’t.

So it was me, all me.  I was the one frittering away our money on Rue La La and who knows what.

I read one article advocating a 15-year mortgage and then I hopped over to my trusty mortgage calculator website:

I was sold.  From the Very First Payment (as opposed to year and years and years down the line) our monthly principal payment would be waaaaaaay more than the interest payment.  $643 more per month wasn’t chump change, but it also wasn’t really that much.  When I analyzed our spending, we were spending that (and more) each month on all sorts of unnecessary stuff.  Restaurants alone ate up hundreds each month!  It wasn’t uncommon for me to meet up with a girlfriend for an appetizer and 2 glasses of wine and end up plunking down $50.  There was no reason I couldn’t do that sort of thing on the comfort of my own front porch, without negatively impacting my lifestyle.  We had just plunked down $88,000 for the house – time to start taking advantage of the house!

We could do this.  Easily, truth be told.

I called up trusty mortgage guy Keith and said we wanted to make the switch.  “15-year mortgage – that’s a sexy little package.  Sounds good,” Keith said, and by the end of the phone call we were locked in to a 3.125% rate.

Hoorah!  Over the course of one 15 minute phone call, we had evaporated 14 years from our home payments!  This was living!

We were happy enough with the 15-year mortgage.  For a few days.  But then I jumped over to the mortgage calculator website again.  And again, and again.  And I kept analyzing our budget.  What else could we do??

Thus began my quest to put as much money as possible towards the mortgage each month.  Each time we make an extra payment, I think about the time that gets lopped off the back end.

It’s HARD to keep it all in perspective!  I don’t know who the hell these other personal finance bloggers are, getting so much satisfaction out of living on $250 groceries per month and never doubting their ascetic living.  Ack!  I want all kinds of things!  It is a daily struggle not to buy stuff, all sorts of crazy, wonderful, stupid, delicious stuff!  But I try hard to keep the big picture in mind.  It also helps that my husband is such a rock.  I don’t even think he notices that we’ve/I’ve cut spending by a TON over the past year.  His spending is unchanged.

So here’s the “state of the mortgage” in June, 2016.  In the graph below, you can see that we were making some extra payments in 2014, but then the real drop off starts when we started to fine tune our focus.  It’s a struggle.  I can’t even say that it’s getting easier :/

We paid off $50K of mortgage principal in 2015.  Our goal is the same for 2016, although we might not quite hit it because we maxed out our HSA (more on that later).  The graph doesn’t look quite so awesome when I zoom out, but still, it’s so much more encouraging than what would have been, with the 30 year mortgage

I just looked it up.  If we had chosen to stick with the 30-year mortgage course, and forgo extra principal payments, our balance going in to June, 2016 would be $341,704.28.  OMG.  Here’s a graph giving a better idea, showing that we’ve already shaved off nearly 3 years of the 15 year mortgage:

Plenty of folks advocate 30-year mortgages, and put the rest in index funds, earn more than the mortgage interest rate, blahblahblah.  That’s fine for them.  But we are extremely conservative.  Basically, we are financial wusses.  We LOVE the idea of being mortgage-free.  Realistically, we wouldn’t put money that we don’t throw at the mortgage into index funds at this point.  We’d probably spend it on $30 entrees and $14 glasses of Barbera on Thursday, Friday, and Saturday nights.  For us, this course makes more sense.  So we’ve been throwing it at the mortgage and maxing out retirement and HSA accounts.  For now, that’s enough.

One important thing to note is that before we made the mortgage our priority, there wasn’t much money left over each month.  We managed to spend whatever we brought in.  While our income has increased marginally over the past two years, the real change has been setting a mortgage goal each month, and setting a budget each week.  We’re now tracking our money, and making it work for us.

I cannot recommend the 15-year mortgage strongly enough.  And then make extra payments whenever possible!  If we hold steady on the track we’re on — which is never, ever a good thing to assume, but let’s just suppose all things remain constant — we’ll have this puppy paid off in another 5 years.  BOOM.  From a 30-year mortgage to 7 and change in under 2 years.  That’s my kind of personal finance!