In January 2003, my husband and I bought our first house, and saddled ourselves with our first mortgage — I believe the first payment was due in March 2003. And in March 2018, just about exactly 15 years later, we made our final mortgage payment. So for the last two months, we haven’t had to make a mortgage payment, which has been pretty excellent.
For several years, our strategy was to pay extra on our mortgage every month. In the early years, our interest rate was 6 percent, so paying it down faster made sense to us. When we bought our second home, in 2009 (and sold the first one), our interest rate was lower, at about 4.6 percent. We continued to make extra payments for a couple years, but we stopped sometime around 2011, and started putting the extra mortgage payments into a municipal bond fund instead.
And then in 2013, we refinanced our mortgage, locking in a 2.44 percent rate for five years. The catch was that it was a 15-year loan, and the rate could go as high as 8.44 percent during the final ten years of the loan term. But we were ok with that, because we had already stashed aside a good chunk of the money we’d need to pay off the mortgage, and refinancing gave us an opportunity to basically make money on our loan for five years. The tax-free dividends we got from the municipal bond fund were more than we paid in interest during the five years before the interest rate reset on the loan. It’s been a long time since I looked at the numbers, but I believe we came out ahead by an average of about $50/month during that time.
When we refinanced and set our plan to pay off the mortgage in full after five years, that seemed like it was far in the future. But time marched on, as it does, and we started getting notifications from our mortgage company last fall about locking in an interest rate before the rate reset. We considered the offers they gave us, but the ultra-low interest rate that we got in 2013 was long-gone, and the new interest rates would have eliminated the benefit we were getting by keeping our money in a municipal bond fund.
So we went ahead with our original plan, and paid off the mortgage the month before the rate was going to reset. It felt weird to pull so much money out of our taxable account… that had always been a one-way street of deposits, with no withdrawals. But it was a really easy process — the money was in our checking account two days after we initiated the withdrawal, and then our credit union wired the payoff amount to our mortgage company. Done and done.
And just like that, the automatic mortgage payment that used to be drafted from our checking account on the first of every month is a thing of the past.
It hasn’t really made a difference yet, since we now have to pay our property taxes directly to the county (our mortgage company used to escrow for that), and we just had to pay the second half of 2018’s taxes, which was more than a month’s mortgage payment. But directly paying our own property taxes — for the first time ever — was almost as exciting as paying off the mortgage!
But really, not much has changed. We sometimes remind each other that we have no mortgage, and it certainly feels good. But our day-to-day is the same as ever. We’re continuing to work towards our goal of financial independence, and we’re getting ever-closer to that. Being debt-free means that our living expenses are pretty low, despite living what we consider to be a luxurious life.
We still have just one car, still buy just about everything second-hand, and still have our $10/month cell-phone plan that my husband and I share (although they made us upgrade from an iPhone 1 to an iPhone 4 last year, which we purchased on eBay). We still prefer free or very low-cost entertainment, cut our own hair, and cook all of our own food. We’ve had two restaurant meals this year, both while we were on spring break with the kids in March (we cooked all of our other meals that week in the kitchen of the trailer that we rented).
We still spend a lot of money on groceries, because high-quality food is really important to us, and we’re happy spending money on the stuff that matters to us. But all of our other expenses are on the low end, just as they have been for many years.
Anyway, I just wanted to check in with an update on the mortgage story, for anyone who has been following our story from the beginning. I hope that 2018 is going great for all of you!