Always setting goals, and no better time than end of year. Drum roll… I am setting a date of Dec 30 2022 (a Friday) to pay off the mortgage. Putting things in writing like this tends to solidify the goal (even better if you physically write it somewhere). I’ll be 46.
My original goal when I started keeping track on this blog 31 months ago was to payoff the mortgage at the end of 2020. At that time, I calculated we should be left with 60K in the bank. Currently we are only 5K away from the 60K left scenario one, so I would say we are roughly 11 months ahead of schedule. With any luck we can continue to stay ahead of this original projection.
Re-evaluating things though, I want a much higher amount of invested assets when we actually pay off the mortgage. I track a ratio of liquid assets to total debt and want that to be in the range between 2 and 3 before I consider paying things off (36 month should put us at a ratio between 1.9 – 2.6).
We will owe 211K in December of 2022 with our extra payments. This will be in year 13 of our mortgage. We have already saved 51K in potential interest payments by paying down principal early. Table next breaks down that calculation (I wish I had kept better records of early payments made, I suppose I could fish them out of my tax statements).
|Loan Orig Date||11/10/2010|
|Total Mortgage Cost||687,299|
|Total Interest on 30 year||281,299|
|Current as of||12/31/2019|
|Current Owed Interest||99,823|
|Current Owed Principal||279,815|
|Where we should be based off original Amortization Table|
|Total Interest Paid||130,105|
|Interest Left (based on 30 amortization table)||151,194|
|Interest Saved to date by making early payments||51,371|
By paying off at the end of 2022 under the current plan of additional payments we would save an additional in 71K. A total savings of ~122K. 51K (original savings from early payment), plus 71K additional saving on 36 month accelerated payoff.
Not bad, but only a 17.7% saving on the total cost of the mortgage. If I paid it off tomorrow we would save 22% over the total cost of the mortgage.
F*#@$ mortgages are genius for the banks. By the time most people are able to pay them off you’ve already paid most of the interest making the payoff less valuable. I suppose this is the point, and why lending is such a profitable business.
Projections say our liquid saving will be between 430K-610K. Median of 520K. Being over the median will be a prerequisite to making this happen. This will still leave us with just over 300K in liquid assets. This seems like a better than good cushion, probably 3-4 years of of ‘normal living expenses’. Perhaps 6-8 years or more if living frugally.
Even without housing costs just taxes, utilities, food, transportation, etc add up to a ton of money. At the low end we look at 2700 a month. I think giving it a cushion and bumping it up to 3300 a month seems like a more likely minimum. Very few scenarios see us cutting our expenses beyond that. Possible to live more frugally yes… likelihood of that happening unless forced, not much. To be more honest, there are few scenarios where I see us spending less than 5K a month (religious school + dues, music lessons, kids activities, vacations, etc etc). These are choices, but choices we have accepted and not likely to change. To be even more honest, and this is hard for me to swallow, but we spend more like 10K a month at the moment excluding the mortgage (this includes things like our car lease). I’d really love to take a look at this and see if we could cut that to 8K a month. Save another 24K a year. Yes we are already savings, but there are some easy hacks where I can chop a few thousand off (cutting the cord was about 1200 bucks a year).
A little more analysis. For the house alone, taxes are 8300 a year, or 700 dollars a month. Home owners insurance is about 180 a month. 75 bucks a month for HOA dues. So even after the mortgage is paid off we are still paying around with a thousand dollars a month for the house (not including utilities, maintenance, etc).
This is good for now, as always I will revise. I originally wrote this by accidentally thinking December 2023 was 36 months away. It is not, and I like our financial picture much better at that point. HOWEVER I think with any luck our financial outlook will look more like December 2023, in December 2022, given that we are already 11 months ahead on project.
Best thing I think we can do now is accelerate the savings as much as we can.