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House mortgage is always one of the biggest loans anyone will have some point in their life. So, is it worth it to prioritize paying it off years earlier and live a mortgage free life?
Why I Decided To Live Mortgage Free
A few years ago, my husband and I had the same question.
Up until then, we had been paying our mortgage for some years already and still had a low 6 figure mortgage balance on our house.
After discussing all our options, we made the decision to pay off our mortgage in one lump sum with our savings and profits from our online businesses.
So, why did we think that it’s a good idea to clear our house loan years earlier even though the home loan interest is pretty low ?
Here are our reasons:
Reason #1: Both my husband and I are working for ourselves. Although we are doing well with our own online business, we don’t want to have to stress about our monthly mortgage payments in case anything happens to our business
Reason #2: We don’t want to keep paying interest to the bank, especially when our savings are not generating higher returns elsewhere.
Reason #3: We have a small child. That means we now have additional child-related expenses every month. Once we’ve paid off our mortgage, we will have one less expense to worry about.
Reason #4: The last reason is more of an emotional one. I feel more financially secure when I know that we have full ownership of our home. And I like the feeling of being debt free, so I can live my life on my own terms.
So, we have been mortgage free and debt free for the past few years now.
Do we ever regret our decision to pay off our mortgage early and live mortgage free?
Not at all.
In fact, I think that that’s one of the best decisions I have ever made.
It makes me feel free.
Being debt free, it also allows me to focus on doing things that I really love and care about.
Is It Good To Pay Off Your Mortgage Early?
So, if you are thinking about whether or not you should pay off your mortgage early and become mortgage free, I recommend that you ask yourself the following questions?
Questions #1: Do you have legitimate investment opportunities that can generate a higher return than the interest you are paying on your home loan?
If yes, then it makes sense to keep your mortgage and put your money elsewhere to grow your wealth.
But if no, then you should consider using your cash to pay off your mortgage instead because you are losing money by just letting your cash sitting in a savings account.
Question #2: Do you have other liabilities or debt?
If you have other debts as well, you need to check and compare the amount of interest you are paying for each one.
Always pay off the loan with the highest interest first.
For example, if you have credit card debt, you should pay it off as quickly as possible because banks charge exorbitantly high interest on card card debt.
Question #3: Do you and your spouse have the means to pay down your loan faster?
If you and your spouse have a stable income, then you shouldn’t have problems with making your mortgage payments on time every month.
And, that also means you have the earning power to pay down your mortgage faster if you decide to reduce your spending.
So, should you accelerate your mortgage repayment and pay off your debt early?
The answer lies with what your priorities are.
Do you feel it’s more important to have more disposable income and keep your current lifestyle or would you rather live frugally and become debt free sooner?
Question #4: What are your long term financial goals?
Another important question to ask yourself is what are your long term financial goals.
Do you want to be financially free and retire early?
If that is your goal, then you should prioritize paying off all your debt first over all other things.
That also means you have to make a lot of sacrifices in the short term such as cutting down your spending and working harder to earn more money.
But if early retirement is not your goal and you are happy working at your job and slowly paying off your debt for the next 20 to 30 years, then that is okay too.
In fact, one of my friends recently upgraded to a much bigger house.
After I heard how much she paid for the new house, my jaw literally dropped.
But who am I to judge?
Everyone has different values and beliefs when it comes to money.
She values a nicer house with a big mortgage much more than a smaller house with no mortgage while I value a life with zero debt more than anything else.
There is no right or wrong.
It is just a different choice.
But, if you belong to the “paying off mortgage early ” camp, here are some tips to help you achieve your goal more quickly.
How To Become Mortgage Free Faster
If you want to become mortgage free quickly, you need to make a plan.
Step 1: Set your goal
So, how soon do you want to pay off your mortgage and become debt free?
Do you want to be mortgage free in the next 3 years, 5 years or 7 years?
Once you have set your goal, your next step is to find a mortgage payoff early calculator which can calculate exactly how much you need to pay down each month to reach your goal.
On the mortgage payoff calculator, you input your unpaid principle balance, monthly mortgage payment and interest rate.
For the repayment options, you can choose how much and how often you want to make your extra payment to pay off your mortgage faster.
You can adjust your the amount of extra payments until you get your desired payoff schedule.
Let’s say, your unpaid principle balance is $150,000 and your monthly payment is $1,000 and your interest rate is 3.5%.
If you don’t have any plans to pay off your mortgage early, then you will clear your loan only in another 16 years and 6 months.
But, if you decide to repay your loan with an extra $1,000 a month, then you will be able to pay off your mortgage completely in about 7 years.
You can use this mortgage payoff early calculator to see how much more you need to pay every month to reach your goal.
Step 2: Start budgeting and save more money
Once you know how much more you are going to repay your loan every month, then you can work out a budget that allows you to set aside enough money for the extra payments.
So, how do you get started budgeting?
The first thing you should do is to find out exactly what your expenses are every month.
It’s good to put everything in a spreadsheet.
My recommendation is to have a detailed breakdown of all your daily expenses.
For example, for your food expenses, you can further break it down to things like breakfast, lunch and dinner.
Once you have your food expense written down, then you can see if there is any way to reduce it.
Let’s say you dine out in a restaurant at least twice a week.
How much can you save every month if you only eat at a restaurant once a week?
What about other expenses such as entertainment and transport?
My husband and I used to go to the cinema every week, but we decided to save some money by just getting Netflix.
By going through your expenses one by one, I am sure that you can find a lot of areas where you can cut down your expenses.
When you look at your savings for each, you might not feel it is a lot.
But when you add them all up, it can be quite substantial.
For my husband and me, we managed to reduce our expenses by $500 every month.
If you are not comfortable with cutting down your expenses aggressively, there is another way to help you pay off your mortgage without compromising your lifestyle.
That’s where step 3 comes in.
Step 3: Make more money
So, there are three ways to go about increasing your income.
- Negotiate a pay raise at your current job (And here is how you negotiate for a raise you deserve)
- Switch to a new job with higher pay (And here is how you negotiate for a higher salary when switching jobs)
- Start a side hustle to make extra money
A Beginner’s Guide: How To Start Your Side Hustle NOW (2020)
There are more than 101 ways to make extra money.
To me, there are two types of side hustles.
Type #1: Side hustles that will earn you extra cash but will not allow you to replace your day job and achieve the freedom you want.
Examples are taking paid surveys, mystery shopping, and food delivery.
Type #2: Side hustles that you can start and grow to earn a consistent income for yourself and even have the potential to surpass the income you are making from your job
If you are looking to start a side hustle that you can possibly turn into a full-time income in the future, then I have two types of side businesses to recommend.
- Service Business: It refers to turning your own skills or other people’s skills into services that other businesses or individuals already want and are willing to pay for.
For example, if you are good at writing, you can offer your content writing services to businesses to help them create website content.
Or if you are a good photographer, you can offer photography services to individuals or businesses.
- Knowledge Business: It refers to packaging your expertise and knowledge into a product or service to help your clients get results that they desire. You can do so by offering coaching program and online courses.
For example, if you are good with helping people solve their relationship problems, you can start a blog and build an audience who are looking for relationship advice. Once you have an audience, you can create and sell either online courses or relationship consulting services.
Or if you have a lot of knowledge about gardening, you can start a gardening blog and build an audience who share the same hobby. After that, you can monetize your gardening knowledge by either selling ebooks or online courses.
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