extra mortgage payments

The only debt we’ve ever incurred was to buy our house. At the time we bought, we just didn’t have a spare $150K lying around so we had to get a mortgage. We knew going in that we didn’t want to be stuck with it for thirty years so we set out to buy a house we could comfortably afford, knowing that we would be making extra payments on the mortgage. In other words we bought well below our means.

The first thing we did when we knew that we wanted a house was to save up for a large down payment. Twenty-percent was common in those days (no 10% or 0% loans, then) but we wanted to put down 40-50%, more if we could manage it. We were aggressive about saving that money and funneled every spare cent into our down payment account. It took us a few years of patient saving, but within about four years we had $60,000 saved and were still adding to it. We knew we were ready to start seriously looking for a house, so we went to the bank to talk mortgages.

I’ll never forget the day that the banker told us how much mortgage we could qualify for. When he popped up with $250,000, I nearly fell over. “Not if we want to eat, heat the house, and maintain the house,” I told him. $250,000 may not seem like a lot these days, but years ago when we bought our house and in the area we bought, $250,000 was a lot of money and would have bought a sizable place. We did the math and figured that for the length of time we wanted to hold the mortgage and the payments we would need to make to retire that debt in such a short period of time, we needed to buy something in the $150,000 range.

That was the biggest key for us: We ran all the numbers to determine not how much we could afford in payments each month, but how much we could afford in regular payments plus extra payments to retire the mortgage sooner. Had we figured just how much the plain monthly payment would be and bought only based on that number, we probably would have bought something closer to $225,000 and had a mortgage for thirty years. This is where a lot of people get trapped with big, never ending mortgages. They look only at the monthly payment and forget to look at how long they must pay that payment.

The next thing we did was look for a house that we knew we could stay in for a long time. We wanted something with a lot of land for extra structures and a floor plan suited for additions. By purchasing a house that could be upgraded over time, we knew we could stay in it for a long time, giving us plenty of time to build equity should we ever need to buy another home or so that when we sold at retirement we could clear a good profit. Had we bought a “starter home” we would have had to move before too long. Frequent moving never gives you a chance o build up the kind of equity that lets you buy your next home without a mortgage and, since the mortgages usually get bigger not smaller, you only add to the debt load. Our plan worked. Over the years we’ve been able to add on and build outlying structures so that we haven’t had to move to increase our space. (Also keeping clutter and “stuff” to a minimum greatly reduces our need for space, so our smallish home is still adequate.)

When it came time to buy, we negotiated well and ended up with a brand-new $150,000 home for $135,000 on over an acre of land with no HOA restrictions on how we could use that land or what additions we could put on the house. We put down just under $70,000 and mortgaged the remaining $65,000. The shortest loan the bank offered was fifteen years, so we took it but made sure there were no prepayment penalties. We paid it off in five years, thanks to aggressive saving and the fact that our regular payments were low enough to allow us to comfortably add extra every month.

We’ve lived here for sixteen years now and haven’t made a house payment in eleven years. In those eleven years we’ve simply saved our “house payments” and have amassed over $200,000 in savings (not counting the interest/dividends earned) just from doing that. I don’t see us going anywhere until retirement so we’ll continue to bank that money for many more years. If we do need to move, our savings and the equity in this house will allow us to buy something else with cash. People say, “Oh, you should have kept your mortgage because of the tax benefits.” True, there are tax benefits to a mortgage. But I know that in sixteen years those deductions would not have come anywhere close to the $200,000 we’ve saved by not paying a mortgage. Plus, we get the security of knowing that no one can kick us out of this house. No tax deduction can give you that.

And that’s how we live free of house debt. We planned well, saved aggressively, were patient, bought far less than we could “afford,” and have stayed put for many years, resisting the upgrade bug. We’ve never tapped our equity so it continues to grow for us, giving us a nice nest egg for retirement. It’s a great feeling. I think that anyone can do it, it just takes patience to save up a large down payment, the wisdom to buy a house that will serve you well for many years, and a willingness to buy beneath your means.