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How we Paid off our Mortgage in 3 Years





In the October 2010 net worth update, I briefly mentioned that I was planning on paying of the mortgage balance this month and I’m happy to say that we’re mortgage free in 2010!  As this is a significant milestone in any financial journey, I thought that it deserved a post all on its own.

History

It all started when we purchased our first house in the summer of 2003, right after graduation.   The goal was to keep costs low, so we purchased a two apartment home to live in the upstairs while renting out the basement apartment.  I raided my cash savings for the down payment and went all-in on our first house.  Fortunately, 2003 was a time when houses were priced very reasonably, and combined with rental income from the apartment, our housing expenses were very low.  A couple years later, I found a great deal on an investment property, put a small 10% down payment and ended up being a landlord to another property.

With the principal residence, I wasn’t as motivated to pay off the mortgage as half of the interest was tax deductible.  While we did pay on a bi-weekly accelerated schedule, we didn’t do much in terms of annual lump sum payments.  As a result, when we did sell that house four years later, the balance didn’t decrease by a dramatic amount but combined with appreciation, we walked away with about $55k after fees.  We chose to move as we decided to expand our family, and the two apartment just wouldn’t work for us in terms of space and location. With that in mind, we built a house in kid friendly subdivision that is zoned for relatively good schools – we still live there today.  In hindsight, we should have held onto the first property as real estate has appreciated significantly since that time, but as you know, hindsight is 20/20.

Back on the topic of mortgages, we poured the proceeds of the sale of the first home, a fairly substantial cash savings amount, and the liquidated proceeds of my non-registered portfolio to put towards the new house.  With that hefty down payment, we managed to start with a 3-year open discounted variable mortgage with a balance of $150k.   As our careers were advancing, and business income ramping up, we felt confident in our income so we topped up our bi-weekly payments by about 50% in addition to making lump sum payments where possible.  What also really helped out was that  in early 2009, we decided to sell our rental property that netted us around $30k to put against the house.

All in all, the combination of savings generated from our frugal habits, reasonable mortgage balance for our incomes,  increased bi-weekly payments, and putting any lump sums to pay down the house resulted in paying off our house in less than 3 years.  We are mortgage free in 2010!

Strategies for Paying Down your Mortgage Faster

As previously mentioned, we paid off our mortgage at a fairly rapid pace, here are some of the strategies that we used:

  1. Set a Goal – I had a goal to pay off the mortgage before the open term was up which was 3 years.  What works for me is to set the big goal, and take baby steps towards it.  The baby steps include some of the tips below.
  2. Establish Savings Habits – It’s pretty difficult to aggressively pay down the mortgage without establishing proper saving habits.  Having the ability to generate savings brings a lot of freedom and can ultimately lead to paying off the mortgage faster.  Here are some ways to save money.
  3. Reasonable Mortgage Balance.  My personal rule is to never obtain a mortage for more than 2x household income.  For example, with our new build, the price was well over our annual incomes.  However, with our large down payment, we managed to bring the mortgage balance to a little over 1X gross household income. 
  4. Accelerated Bi-weekly Payments – This is a common strategy that works!  By simply paying the mortgage during bi-weekly pay periods (instead of monthly) can result in an extra payment by the end of the year, which ultimately means less interest.  This strategy alone can reduce the mortgage amortization by 3-4 years.
  5. Topped up Payments – I like the strategy of topping up mortgage payments as it is forced savings.  Even an extra $100 per mortgage payment can make a  difference in amortization.  Most fixed mortgages allow payments to be topped up by as much as 100%.
  6. Annual Lump Sums – This goes back to having savings habits.  With strong savings, it enables the homeowner to use up some of those prepayment mortgage allowances.  I believe common practice for a fixed mortgage is 20% of the original mortgage balance can be paid down per year.  As our mortgage was an open mortgage, we took advantage and put large amounts when cash was available.  For example, when we sold our rental property and liquidated the non-registered portfolio.

Do you have a goal of paying off your mortgage in a short period of time?  What are your strategies?





98 Comments, Comment or Ping

  1. Congratulations. It would be interesting to hear where you are going to direct the funds that were going toward the mortgage

  2. 2. josh

    congratulations. one question. why did you cut down your money trees”rental”
    they worked well for you in the short term, think how good they would of worked for you 10 or 20 years from now,

  3. @ Josh, thanks! We sold the rental to our tenants, more on this in an upcoming post.

    @larry, thanks! I don’t have a solid plan yet, but I’m thinking non-registered investments, perhaps bulk up my dividend portfolio. Thoughts?

  4. 4. Dana

    Congrats! That is a *huge* milestone – worthy of a mortgage burning party, maybe?

    We began a cash flow dam earlier this year and are hoping to pay off our mortgage by 2014 – seeing stories like yours helps keep me motivated and focussed on the goal.

  5. 5. Ron

    Congrats FT! I hope to join you in the land of the mortgage free! (in a decade or so..) ;)

  6. 6. nralpmet

    Kudos to you and my wife! The strategies you list are the simple logical steps to mtg-freedom. I also think there some more basic ideas that I don’t think people consider. My wife and I paid off our mtg in 7yrs (1994-2001) – the keys for us were:

    1. The Bank may lets you borrow $xxx – doesn’t mean you should take out a mtg for $xxx. Our house cost about 60% of what we could have bought if we took out the full amount of the mtg the Bank was willing to lend us.

    2. If you decide that you want to be mtg-free, then you need to have some discipline on making those extra payments. Our first vacation actually flying out of Ontario was in 2001, after we became mtg-free.

    3. As you progress in your careers, resist the urge to upgrade to larger more expensive homes. Yes, sometimes you need to change homes to accomodate more family or job location, but do not buy a bigger more expensive home to keep up with the Joneses. Maybe some incremental changes to kitchens, bathrooms, basements are more prudent.

    I wish more people would be more disciplined as you can never tell what the future brings. When I got laid off on 2008, servicing debt was not something we had to worry about.

    Good luck.

  7. 7. Steve

    I am also hoping to pay off my mortgage soon. I will pay it off some time next year putting it between 3 and 3.75 years. I bought my first home for $345K in 2008, putting $105K down, so $240K mortgage. It’s a four bedroom and my wife and I don’t have kids yet so I don’t think we’ll need to upgrade for a while.

    I finished engineering school in 2004 and paid off my student loans ($20K) and car ($7K) by the end of that calender.

    Started saving like mad after that while still renting in student housing (only grad students lived there so it wasn’t bad at all).

    My wife’s income was only about $10K /year when we bought the house and all her money at the time was tied up in her condo and her business. She sold the condo and the $35K proceeds went to a lump sum mortgage payment.

    We hoped to pay off the mortgage in 7-10 years. Since then my wife wound up her business (no cash from this unfortunately) and took an administrative job at the local university.

    With the increased income we’ll start 2011 owing about $60K on the mortgage.

  8. 8. ldk

    Our goal when we built our house in ’97 was ‘mortgage-free-by-40′ (which was a 13 year time frame and this year, incidentally!) We managed to be ‘mortgage-free-by-36′ (which doesn’t quite have the same ring to it, but was oh-so-satisfying) by employing many of your same strategies…namely avoiding lifestyle inflation as our businesses and income were growing and by throwing lump sums at the principal every chance we got. We bought/renovated and sold 4 properties for a profit over a few years that allowed us to dump about $50k on the mortgage and pay it off sooner rather than later.

    With the $1200/month of extra cash flow, we have added $750/month to our other investments and allowed ourselves a few extra hundred dollars a month for spending.

    Congrats to you on reaching your goal~Enjoy it!!

  9. Congratulations!! That is a big mile stone. We set a goal to pay off our $316K mortgage in 5 years and being a little over two years into it we are on track.

    Two points I want to make.

    1. I think it is important for people to have a good grasp of how much interest they will actually pay if they do not make extra payments on their mortgage. This should provide the motivation to come up with some extra dollars every year to make extra payments.

    2. Accelerated bi-weekly payments are a bit of a scam. Essentiall you are making the equivilent of 13 months of payments every year payments rather than 12. You are paying more over the course of the year with acc bi-weekly paymnet. You could also increase your monthly payment by 1/12th to make that extra payment with pretty much the same result.

    Bi-weekly work well if you are paid every two weeks.

  10. 10. Duncan

    I’d argue that paying down a mortgage more quickly at todays low rates makes zero sense. You’d be better off putting that extra money into other investments that pay more than 3 % per year.

    Good for you for being prudent and disciplined enough to achieve your goal though. Not many people in Vancouver (where I live) can pay off their mortgages in 3 years with most over $500k!

  11. @Duncan, while I somewhat agree with you that it may be better off to invest at these rate environments, in our situation we already have everything maxed out. RRSP’s, TFSAs and a relatively large non-registered account. And with large cash postions in each of those accounts, it’s likely either add cash to a non-reg account, or pay down a mortgage that would result in greater than GIC returns. We chose the mortgage.

  12. Congratulations FT! This is HUGE and I am very jealous :) Those are really good strategies that you mentioned. I hope to use strategize and use these tips as well.

    Early retirement next?

  13. 13. ChrisW

    Congratulations, I thought I read somewhere that you were implementing the “smith maneouver” to help pay down your mortgage did this happen? Is the smith maneouver a strategy that is still recommended? I am far away from this milestone but I am researching all the steps to reach it.

  14. That’s great news FT! I’m really happy to hear that :)

    Although I agree with some other posters that paying down your mortgage when interest rates are so low may not be the best option, I still like to do it myself. We should probably have our mortgage paid off in a year or two and then we will likely move into a bigger house as our careers hopefully continue to advance.

  15. 15. nobleea

    Even at rates of 3%, it’s tough to find a guaranteed investment that will yield more than that after tax.

    That being said, we don’t have a specific goal of paying off our mortgage early. We pay more than required every month and a lump sum payment once or twice a year. If we stopped travelling, playing sports, and renovating we could probably pay it off in 3-5 years. But you only live once.

    Certainly a good way to pay it off quickly is to avoid lifestyle inflation and increase payments when you get raises. We also employ the tactic of constantly reducing expenses while income grows (cut back on utilities, hunt for coupons, grow side businesses, etc).

    Another big thing that can help you in paying off your mortgage quickly is living in a low cost housing environment. It’s much easier to pay off a mortgage on a 220K house with a professional salary than a 350K or 600K house that might be more common in other parts of the country.

  16. 16. alexander45

    Duncan,

    It actually isn’t that simple. 3% pretax is still much less than my 2.5% post-tax mortgage payment. Only $5000 of that can go into a TFSA . . .

  17. @youngandthrifty, I don’t think i’d ever retire in the traditional sense, but perhaps a career shift to something a little less routine.. .perhaps taking the onilne business full time? :) Regardless, yes, we’re working towards financial freedom, where our investment income meets our expenses. Long way to go yet!

    @Chris, yes we did implement the Smith Manoeuvre after, but no, we never used the dividends or investment proceeds to help pay down the mortgage.

  18. 18. RickM

    Congratulations! You’re offering up lots of options to consider to get off the merry-go-round of being perpetually in debt as many North Americans have chosen to do.. While many simply cannot afford to pay off their homes as quickly as you have done, certainly we can do it in shorter time frames saving significant amounts of interest. As was mentioned, one should calculate how much interest expense one can save by increasing the mortgage payments even by just a few dollars per payment. That in of itself will motivate people to get out of debt.

  19. It is important to calculate how much paying down debt saves you in interest versus buying something small like a coffee.

    $4 towards debt repayment vs the immediate pleasure of a coffee.

  20. 20. nralpmet

    The invest vs pay off debt debate is one I have with my friends all the time. People say “Well, I can get 7% on my investments vs paying 3% on my debt”. I think most people forget that investments volatile reflecting the risk in a given instrument. An investment that grows at 7% might actually be anywhere from -7% to 20% (random numbers) at any point in time. Plus that 7% in only realized when you finally dispose of that investment. What happens if you need a cash inflow and your investment is in a down phase? Most people I know (myself included) do not have the skill and time to actively manage their portfolios accounting for risk and cash flows and most professional financial advisors are not much better at building risk-adjusted portfolios (I have worked in this industry). My view is get rid of the bulk of your debt and then start beefing up investing for your future.

    But, to each their own, eh?

  21. 21. DanP

    Were u worried at all about your lifestyle being negatively impacted by funneling all your funds into savings and your mtg? Someone said it above, you only live once.

    Though that is an amazing feat to accomplish.

  22. I need to purchase a property first hehe but I definitely plan on doing bi-weekly payments and applying any type of lump sums available.

  23. @DanP, that’s probably the first instinct that we’re so frugal that we don’t enjoy life. In my opinion, the opposite is true. We spend money on things that add value to our lives, and just cut back on things that don’t. I’m not sure what I could spend on to make my life better? Maybe we could eat out more? Do you have any examples?

  24. Congratulations, FT! I thought my wife and I did well eliminating the mortgage on our first house in 4 years. We used some of the same strategies that you used — increasing payments and applying lump sums yearly. Apparently, we didn’t do it to quite the same degree you did.

  25. @michael, congrats to you! I assume that you’ve since moved? Did you upgrade?

  26. @FT: Yes, we were mortgage-free for 2 years and then upgraded. Actually we owned both houses for a couple of months. After the first one sold, we took the leading digit off the new mortgage. A couple of years later we were mortgage-free again.

  27. 27. Rachelle

    Congrats…and welcome to freedom…you can now step out of the rat race if you choose to. Obviously you are much more insulated against catastrophe, such as illness, unemployment even an abusive boss.

    It’ll be easier to be selfemployed if you want to be of just watch those investments grow

    Awesome !

  28. 28. DanP

    @ 22. FrugalTrader

    My thoughts are more along the lines of vacations, schooling, hobbies…not necessiary material possesions, but experiences. Now im not able to know that you didn’t do these things, but just questions that arrise in my personal life.

    For instance, last year i had the option of putting an additional 6k into savings, instead i decided to pursue my CFP and completed that instead. In 2 months time, i have a 3k bonus im expecting…and again, im contemplating putting that towards savings, but i am leaning towards taking that money and going to Europe and expereincing/seeing things i’ve never had the opporunity to do. I just always have an internal struggle with saving money(putting it towards a mrotgage in your situation), or going out and just enjoying life. I always save 10% of all my pay, but i’m not ever able to justify passing up things in life.

  29. @DanP, if opportunities come up and they would create value in our lives, then we probably wouldn’t let money hold us back. It’s been over a year since our last vacation, not because of money, but because we have been in baby raising mode. But I see what you’re saying, it’s all about the balance.

  30. 30. JK

    Congratulations FT!

    With the meteoric rise in property values in the St. John’s area, my wife and I are planning to sell our 2 apartment homes in the next 2-3 years. After that’s done, then we will be in the “mortgage free” club.

    By the way, you still have your LOC on your re-advanceable mortgage, right?

  31. 31. Jungle

    Wow congratulations. Make sure you go out and celebrate, maybe go out for a nice dinner. That is a HUGE accomplishment at your age. Very few people could say they’ve paid off their mortgage like that.

    Now you don’t really have anything going to interest cost (except SM debt) so all your income is now available to save, invest or spend. I look forward to seeing what you do with money.

    Just build up a massive non reg account, maybe ETFS by dollar cost averaging and stocks when they are on sale.

  32. 32. Mr. Frisky

    Congratulations! Perhaps you and others can offer me some advice.

    I am 29 year old professional netting about $7,000 per month. The rent on my 500 square foot downtown condo is $1,400. I’ve just finished paying off $60,000 in student debt in April and since have been able to squirrel away $35,000 in an RRSP savings account and $5,000 in my TFSA. I am on track to achieve my goal of $60,000 in total savings by my 30th birthday in April, and $100,000 by end of 2011.

    My hope is to own a condo outright by 35, but with high downtown prices and a lifestyle in flux, I’m not sure of the best way to proceed. If I buy a a condo I can afford, it will be too small for me and my girlfriend to live in. If I stretch myself, I’m afraid I won’t be able to reach my goal by 35.

    A friend I trust advises that I continue to save/invest until my situation stabilizes, but my concern is that if I wait I won’t have as much disposable income to achieve my goal in time as responsibilities begin to creep in.

    Thoughts on best course of action? What should my target price be?

  33. @Jungle, thanks for the kind words and the tips. The great thing about the SM is that I capitalize the interest so it requires $0 of my own cash flow. In the near future, we’re likely going to develop the basement, which will cost $25k or so. But yes, more than likely the money will be invested in a non-reg account.

    @Mr. Frisky, congrats on the big income and savings at a young age. One of the reasons why we were able to pay off our mortgage fast is because we always kept the mortgage size low relative to our income. Our first house had a mortgage close to 1x gross family income, and the second house was slightly over 1x. My rule is that the mortgage should not be greater than 2x family gross income. If it is, then saving a bigger down payment is required.

  34. 34. Rachelle

    Mr Frisky,

    Consider getting better value out of the downtown core. You can be close to a subway or streetcar to make the commute bearable.

    This way you can have both a debt free existence and paid off condo.

    For example a few days ago on the MLS I was looking at a 3 bed condo for rent a 2 minute walk from Kennedy station for about $100K. You may not want to be that extreme but it is out there for people who want to do something different.

    By the end of 2011 you’ll be able to pay cash for that sucker :) and never pay rent again.

  35. 35. Sampson

    Great job!

    Now you will finally HAVE to tell us what you will do with the freed up money. HELOC? Invest? Finally some lifestyle creep? Come on… you have to stop putting us all to shame.

    Maybe you guys can have more kids ;)

  36. @Sampson, lol, look at you being modest! I recall you mentioning that you focus on investing during low interest rate periods, is that your strategy right now?

  37. 37. Sampson

    Absolutely, new monies have been slow to go in, but we remained very active through the past few years. Quite glad, since the gains over the past 1.5 years will easily cover the interest of not paying down the mortgage.

    Still, it must feel nice to be debt free though. All the flexibility in the world.

  38. 38. Rachelle

    I agree with Sampson, tell Mrs. Frugal that you need more mini Frugals around

  39. 39. Jimmy Dean

    I have been fan of this website and love reading the posts. These strategies are very useful. They requires some serious discipline, will power and some amount of luck.

    Foundation –First rule of thumb is never take a mortgage more than your means. Keeping your monthly payment to < 31% of gross monthly income is vital. Second, make a big down payment. I recommend 20%. If you don't have it. Don't buy home. Make sure you have 6 months worth of savings in emergency fund at any time.

    On a 300K mortgage at 3.5% fixed rate. Interest costs ~$46000 for first 5 years. All strategies by FT are spot on. It all nails down to "needs" and "wants". That I why I mentioned discipline and will power are most important factors to being mortgage free,

  40. 40. nwormald

    @nralpmet: You raise a good point about investment volatility and unrealised gains (or “paper profits”) when assessing investment versus debt repayment options. Your question about needing cash inflows when an investment is down is over-complicating things, IMHO.

    For me, I’m not putting money into investments, unless I don’t need the money. My “cash inflows” are covered by my emergency fund. So for me, down means I’m waiting or cutting my losses. Otherwise, if a “cash inflow” is needed, the only options are to use it as collateral on the hope it rebounds or sell it, taking whatever loss.

    The other factor is to learn as much as you can about investing, when you can so that in future, you will benefit. Based on knowledge gained over the last several years, I was able to recognise Mar 2009 as a buying opportunity.

    I also knew that I wanted to pay down my mortgage while waiting for a capital gain, I wanted leverage for a beaten down sector (financials) plus dividends that was not tied to only one stock. The basket I selected cost me $3.80 per share and as of the November 2010 dividend, has paid out a total of $1.80. As of earlier this week, it trades at $11 per share (unrealised gain).

    Even if I miss selling for top capital gain, I’m pretty sure I’m ahead of the game compared to using the same money to make extra payments off the 5.8% mortgage. As for risk, it helps to be buying on the low end – there was risk but being able to cherry pick at low valuations IMHO made it worth it.

    The biggest barrier I see is that most people treat their job as continuous learning process. For some reason treat investing as an all or nothing situation. A bit here and bit there, helps avoid mis-steps and can pay off dramatically.

    The bottom line is that without the time spent learning, I wouldn’t have recognised there was an opportunity, known about baskets instead of individual stocks or been focussed on a beaten down area.

  41. Taking the online business full time would be awesome! Or even decreasing the frequency of how much you have to work per week, variety is the spice of life, right? :)

  42. 42. Future Money-Bags

    AWESOME!!
    That is an amazing job you have done FT :)
    I started reading this blog last year, and have learned a huge amount of financial details and tips. (This was the first financial blog I started reading).

    You have opened me up to a whole new way of thinking and helping me learn more every day. Though I may not have my mtg paid off, or even have one in the first place, I have a plan AND I know the steps I will take to pay off my mortgage.

    Since my first job I have saved my money, and only spent what I needed. I have spent the last 4 years saving for a DP, but I never feel that I have enough yet. Since I am going to purchase a rental property and continue to rent out an apartment, I need to get 20% D/P saved up. I know you say not to get a Mtg for more than 2x my annual income.. but When last year I made under $30k before tax, that 2x rule is not possible.

    I am always trying to make more money, and find ways where I don’t have to keep working 60 hour weeks, but for now I will have to keep doing that. Since I live in vancouver, I would like to buy a place $250-350k.
    Do you think I should just buy a 30 year old apartment to rent since I will not be living there?
    I do not want to have to worry about repairs, since I will be working fulltime. will not have a lot of time to be a landlord, you know?

    I am 24 and plan to be mortgage free by 35.

  43. 43. Dr. STAN

    A most excellent milestone. Welcome to the club of the young and mortgage free. It’s a great feeling. My wife and I paid off our $360K Ottawa house a couple of years ago at age 31. We then took out a HELOC at prime to invest about $44,000 in various large cap stocks, will fully tax deductible interest of course. We’ll pay it back gradually with our newfound cashflow.

    Our house is modest compared to what some of our friends own (in the $450-500K and up range), but it’s hard to not crack a smile at dinner parties when someone goes on about how nice it would be if only they were mortgage free. “It sure would…” This opens up many avenues for travel, investing, home improvement, leave from work, etc. It’s nice to have options.

  44. 44. Geran

    Congrats FT!

    I bought my first condo 1 year ago, and while saving for paying for our wedding I still managed to chop off 1.5 years from the mortgage already. Won’t be paid in 3 years, but we’re working on it.

    Here are 3 ways I use to pay the mortgage faster:
    1) After July, my paychecks are about $200 more each (twice a month) (no longer paying for employment insurance I guess). We budget the entire year on the lower amount, and that “extra” goes directly towards the mortgage. That alone basically contributes to $2200 paydown / year.

    2) I get paid twice a month (not every other week) so bi-weekly payments are a pain. Instead, I do what someone else mentioned: increase payments by at least 1/12th

    3) This year, we bought a Rent-To-Own investment property with a positive cashflow of about $600 a month (ROI of about 29% per annum). Most of that will go towards paying down our own house faster.

    Cheers!

  45. 45. Financial Discipline

    Congratulation on paying off your mortgage in three years! It is nice to read this blog and find out that there are some like minded people out there. My wife in I will have our mortgage paid off in early 2012 (we are 27 and 28 and have had a mortgage for one year).

    The formula for paying it off is simple. We rented a nice but small place for three years and saved up a $110,000 down payment (we used the RRSP homebuyer withdrawal to save taxes). Then when it was time to buy the home we purchased a $300,000 place instead of a $700,000 place (which is what the bank wanted to loan us). Since our living expenses are so low we are able to put about 75% of our income toward reducing our mortgage each year (we also make RRSP contributions and have a leveraged investment account).

    The difficult part is staying disciplined when everyone we know is a conspicuous consumer. Blogs like this help. Keep it up!

  46. 46. ernie

    Not to diminish the accomplishment, but there was an obvious tradeoff. E.g. you took the
    ” proceeds of the sale of the first home, a fairly substantial cash savings amount, and the liquidated proceeds of my non-registered portfolio to put towards the new house.”

    My question is whether you monitor your overall net worth more than debts outstanding. In going ‘all-in’ on the house, you are committing a lot of eggs to that basket. A basket that is ultimately only worth what someone will pay you for it.

    Now, you seem to have a steady stream of income from salary, so it isn’t a big deal, but I think it’s something to consider.

  47. 47. Amy

    Congratulations. But I would like to say it didn’t take you 3 years to be mortgage free but 7 years. You bought your first house in 2003 and then just rolled over your equity into the new house for a new 3 year mortgage.

  48. 48. cannon_fodder

    FT,

    Congratulations on a monumental milestone! How did you and Mrs. FT celebrate?

    Hopefully your blog is responsible for inspiring many more people to be mortgage free sooner.

    Coincidentally, I am going to make a final lump sum payment on our mortage to eliminate it tomorrow. My wife and I are going on a cruise next week and I will surprise her one evening with the news. I plan to smuggle onboard a small bottle of icewine, that we have been saving, to toast our success.

    Going forward, we will put all of the mortgage payments toward our HELOC. The Smith Manoeuvre has worked out well for us so far…in just over 2 years it is almost double the value of the HELOC.

  49. 49. Gordon

    Enjoy being mortgage free. For now.

    Because soon, you’ll be grabbing another mortgage. Why? Because all the net worth sitting in your house is doing nothing for you–it’s not working or growing, but in this market, will probably soon start shrinking.

    So you next prudent step will probably be to borrow against your house to invest; this is a very common and successful strategy (as you know).

    I say this only because I had a similar opportunity to pay off my mortgage, but through: why? I’d rather let my bank hold the risk, and put all my money elsewhere–where it can grow even if my house value retreats.

    I wrote about this on my Savings-Sense.com blog:
    http://www.savings-sense.com/2010/11/how-to-save-when-value-of-money-is.html

    True with a paid off house you enjoy the illusion of security, but our economy is built on credit and that’s not always a bad thing. If disaster strikes or opportunity knocks, you’ll be looking to borrow money soon enough. And mortgages are the cheapest money you will ever get.

    So while I applaud your discipline, I question your strategy.

  50. @ernie, thanks for visiting the blog. I actually keep dibs on my overall net worth here: http://www.milliondollarjourney.com/category/net-worth-updates. The reason why we sold our non-reg investments and put them on the house is because of the Smith manoeuvre. It allows us to reborrow from the equity in the house and invest while having the mortgage tax deductible.

    @amy, technically, you are correct, but note that we did not concentrate on paying down the mortgage on the first house due to the tax deductibility of the mortgage.

    @cannon, thanks, and congrats to you! So you’re going to eliminate your investment loan completely?

  51. @Gordon, 3 years ago, I implemented the Smith Manoeuvre where the equity in the house can be borrowed against to invest with. So far, i’ve used over $50k and have credit of over $200k. Here is more info:

    http://www.milliondollarjourney.com/the-smith-manoeuvre-a-wealth-strategy-part-1.htm

    http://www.milliondollarjourney.com/category/portfolio

  52. 52. Zip

    Welcome to the mortgage free world, FT.
    We are finally mortgage free as well. It took us 5 years, but it was worth every sacrifice.

    PS: We live on the westcoast with LOTS of snow (lately!) :)

  53. 53. iamphysio

    Congratulations but….
    I can’t believe I’m the only one saying this. Yes it’s great to make accelerated bi-weekly payments, and to top off payments by 50% is quite an accomplishment. However even if I did this (biweekly accelerated I do) my mortgage would be paid down another $6,000 per year (on a 150,000 mortgage). Yes you put the $30,000 down from a rental property but that leaves 120,000 to pay off in 3 years! Annually you would need to pay off 40,000 of which about $13,000 would come from mortgage payments and the 50% top up. That leaves 27,000 more each year or $2250/month net. This isn’t accomplished by cutting coupons or by not taking a vacation this year. I’d have to say I’m incredibly frugal but even if I stopped eating, paying for my utilities, paying for any insurance (house, life, AD+D, Car), and contributing to charity I wouldn’t be able to save 2250 more a month. I have a well paying job, rental property income of $600 monthly, wife working part-time and we juggle child care responsibilities so we don’t have to pay for daycare costs for our 4 children. We get hand me downs from my family for clothes, drive a 12 year old vehicle, don’t drink, smoke etc,etc. What I guess I’m getting to is that this isn’t just accomplished by the normal means of accelerated biweekly payments and topping up payments and being frugal. This is accomplished by living well below your means and/or increasing your income substantially with side businesses. I don’t want to sound negative because this is a great accomplishment but the emphasis really needs to be on these last two pieces of the puzzle.

  54. 54. nobleea

    iamphysio,

    what you are alluding to, and what is one of the biggest reasons why FT paid the mortgage off in 7 years, is that a house was purchased that was cheap when compared to their salary. He only took out a mortgage worth 1x annual family salary. Obviously that’s not possible in a lot of canadian cities without a massive salary. But in a small town, or most places in the maritimes, it would be quite achievable when there are two professional salaries in the household.

  55. @nobleea, thanks! There are a lot of new readers from a globe and mail link, and I can see how they would have questions.

    @iamphysio, as nobleea mentioned, we kept our balance low relative to our incomes. But it also helps that during the 3 years, we had a very low rate environment and we had a very low discounted variable rate. Therefore, most of our payments went straight to principal.

  56. Wow – congrats! Amazing.

    Did you ever doubt you could do this?
    Did you ever feel tempted to invest more now vs. pay-down your mortgage later?

    Your blog continues to be an inspiration to me, and I’m sure, thousands of others. Keep up the great work.

    My Own Advisor

  57. 57. Melanie Samson

    Congrats! It’s definitely a huge milestone. We’re working on student loans first but the mortgage will be next in line.

  58. 58. Ty Webb

    Here’s why I don’t agree with the “Interest rates are low, invest your money instead” argument. While rates are very low now, why not bang off your mortgage as quickly as possible? Say your 5-year term comes due and rates have shot up dramatically. Now you’re stuck paying a fortune in interest, while your investments may or may not have appreciated greatly. If you had paid the mortgage off in the 5 years you are insulated from the high interest rates and you can use them to your advantage by buying GIC’s at the high rates with all of the free cash that you used to spend on the mortgage every month.

  59. FT,

    Congratulations! I know you will make your money work hard! What a great story!

  60. 60. Canucktuary

    Congrats FT. Your news crashed the servers earlier in the day when that link was posted on the G&M’s front page!

  61. Congrats FT, that’s great! I have a long way to go on my mortgage. We actually have a 35 year amortization, not because we plan on actually taking 35 years, but just to give us low payments for the next 5 years while my wife is at home with our child(ren?) Once all kids to come are a few years old she’ll go back to work and we’ll finally ramp up the payments.

  62. 62. JFG

    Your explanation to Accelerated Payment was a little off. And “No Debt Guy”, it is not a scam, it is a proven method to pay down your mortgage a little faster.

    Simply put, let say you have a mortgage at $1000/month, it just means that you will now pay $500/b-weekly. That means, two extra payments of $500 a year.

    At the end of the day, monthly, bi-weekly, weekly or bi-monthly is not the issue. Just pick the same day as your pay cheque, it will make things easier.

    As for the pay down your mortgage vs savings (RRSP/TFSA/Non-registered) argument, it is never black/white. You cannot say he did a good or bad decision without knowing ALL his story. That’s why the the good FA’s out there always ask you questions about your life first, before the investments.

    And as a side not, extra lump payments are usually 100% Principle. That’s why they are so effective to bring down your mortgage.

    Congrats though. Time to break the bubbly.

  63. @financial cents, thanks! As for your questions, we were at a point where we were putting a lot of cash into investment accounts, but running out of investment ideas, so debt was a good alternative. I didn’t have too much doubt as I did calculations as to how much my regular payments would reduce the balance, and the remainder was a reasonable lump sum amount.

    @Canucktuary, you are right! I actually had my host upgrade my VPS account to deal with the traffic.

    Everyone else, thanks for the kind words!

  64. 64. geoff

    It is clear that, without intending to discount the accomplishment, that two things seem really to have been the root cause of this – 1, buying a house that was 1x household income and 2 not having children

    The simple truth is that many people in major cities in Canada can’t buy a house that is 1x household income that is their ‘forever’ home. (IE it’s not prudent to buy a bachelor condo if you have 2 kids, etc). Even our modest detached house in Toronto was 3x our income (and our current mortgage just over 2x). The second reason this was possible was not having children. Daycare costs about $16,000 a year in TO. That adds up fast. We bought our house in 2007, had baby two weeks later, and I was 32 and my wife 30. Now I’m aiming to be mortgage free at 43 and even that is probably agressive (8 years from now).

    So those of us with kids who live in metropolitan areas – and yes I realize we could have bought a cheaper house but I left home at 8:05am this morning and was at bay/bloor at 8:40am and its hard to put a price on that commute – shouldn’t feel too bad that we can’t realistically accomplish this and just be proud / envious that others have but at trade-offs (such as not living in Toronto, Vancouver or possibly Montreal) ;)

  65. @geoff, couple things.

    For both principal residences, we purchased our houses with mortgage balances just over 1x our household income. The houses themselves were much more than 1x. For example, our current house was purchased for $275k.

    To your second point, we have a toddler and expect to have more.

  66. Great article, and as usual the comments were the icing on the cake. This whole ‘pay-down-mortgage-to-sleep-better-at-night’ argument don’t fit my personal strategy but I respect those who take the discipline. FT, I think you should put a poll up on the front page asking if people had a mortgage whether they would accelerate payments to the mortgage or to investing. I’d be very interested to see results.

    One other thing not mentioned by any commentor is the prospect of investing in rooftop solar panels. This can often yield returns of 15%, guaranteed cash flow from the government! Use your eliminated mortgage payments to purchase the solar panels and then sell the power into the grid. Easy money!

  67. 67. nobleea

    Chris:
    I think the juicy electricity rates and rebates for solar panels are only in Ontario. And there is some uncertainty as to whether they will keep them around.

    It’s hard to justify solar panels in Alberta for example, when we only pay 4-5c/kWh. And before anyone comments that there’s not enough solar energy, both Edmonton and Calgary have the greatest potential for solar power generation of any major city in Canada (both hours of sunshine and solar insolation values).

  68. 68. Joe Blow

    You’d never be able to do this in Vancouver. Believe me. You cannot buy a single detached home in Vancouver, West Van, or North Shore on 2x your income.

    We are dinks and live frugally. Property taxes and utilities and BC personal income taxes eat up your income. We are on a 35 yr amortization but paying more than our accelerated biweekly payments to make our current mortgage a 25 yr am. We’ve also put down additional down. We’ve maxed our RRSP and TFSA.

  69. 69. geoff

    Ok followup questions –

    So you bought a $275K house with an impressive $125K down; so in other words you paid back $150K mortgage with presumably an income of around $140K (because you said the mortgage was just over 1x your household income).

    In Toronto $275K doesn’t even come close to enough money to buy a proper house let alone the costs of renovating to get it up to reasonable standards (and I don’t mean granite countertops, I mean removing tube and wire electricals, 30 year old furnaces, etc). I have to ask what city you’re in and what your daycare costs are. In this city, they are ridiculous if you are lucky enough to find spots.

    Please realize that I’m not saying that’s not impressive what you’ve done. It is, but it’s largely also a matter of some luck and some help and the benefits of having a long-term relationship – many of us don’t meet our partners until our late 20s/30s which cuts back on networth). They say success is what happens when good planning and good luck meet, so I’m not discounting the good planning you’ve done in any way.

  70. @geoff, the goal of the article is not to show that “anyone” can pay off their mortgage in 3 years, but it does show that home owners can dramatically reduce their amortization terms should they focus on it. As well, you choose where you live. You can buy housing for 275k in toronto and area, but again, you choose your own lifestyle standards.

  71. 71. BluenoserinCowtown

    The details make me feel a little better about our efforts. We’ve paid down our mortgage about $100K in three years, despite a wedding, many trips across the country to attend to family and both of us getting laid off during that time.

    congrats FT, can’t wait to join you in the mortgage free category (even though it will be a while yet!)

  72. 72. geoff

    @ FT – I think there were others like bluenose and me who agree the details make us feel better. @ Blue – we’re in the same boat. Paid $451K with a $60,000 downpayment + $30,000 in renos. Didn’t want to touch the roughly $50K we had in rrsps. Have paid down $100K in 3 years too, despite a baby and other interruptions. I’m counting the days until daycare costs get cut in half to a more reasonable $8000.

    As for choosing where you live, that’s true to an extent. Many of us have family that we’re close to, have jobs that we have seniority in or enjoy, work in sectors that are central to downtown Toronto (ie Marketing, legal or finance) etc. Though yes, we could find properties outside of Toronto for $300K, a 2 hour commute is not the best use of finances or time either. So I do congratulate you, but I’d also congratulate you if instead of paying down your mortgage you’d put that money into a stock that returned 15%. The fact is, you have extra money because your houses are much lower than your incomes; now you are very smart to not spend that on a newer car etc, etc however.

  73. 73. Sampson

    Very curious about all the ‘skeptical’ energy of some of the posts. No, not everyone can pay off a mortgage within 3 years, and FT’s story is certainly one of good planning, good luck, and vigilance to a financial plan.

    Who says one can’t buy a house with a mortgage 1-2X annual salary? No one says you have to buy a house right after getting married, your early thirties etc. Why can’t you live in Vancouver, save up to $300-$500k in your mid- to late forties before buying your first home?

    I haven’t paid off my mortgage, refinancing the first home to fund a bigger second home, but my story could be very similar to FT’s. My mortgage could be gone tomorrow if we focused less on investing and more on debt repayment.

  74. 74. Zip

    @Sampson:
    Quote: “Who says one can’t buy a house with a mortgage 1-2X annual salary? No one says you have to buy a house right after getting married, your early thirties etc. Why can’t you live in Vancouver, save up to $300-$500k in your mid- to late forties before buying your first home?”

    I agree.

  75. 75. Jane

    CONGRATULATIONS on being mortgage free! We paid off our balloon mortgage in 5 years. We did this by putting 1 income toward the mortgage (especially toward principle reduction) and living off the 2nd part-time income. I know people talk about mortgage interest being tax deductible but I’d rather have other forms of tax deductions than a mortgage interest deduction.

  76. 76. cannon_fodder

    Yes, FT, we will eliminate the HELOC completely. In 4 years we plan to retire outside of the country so we won’t have a house to borrow against in Canada.

  77. 77. Geoff

    @ Sampson and Zip – “Why can’t you live in Vancouver, save up to $300-$500k in your mid- to late forties before buying your first home?”

    The average house price in Vancouver is $700,000.

    I think your scenario is fair but waiting until late 50s to 60s gets a little depressing.

  78. 78. Meg

    That is awesome! Congrats!

    Hubby and I just refinanced our home from a 20 year, 5.99% to a 15 year 3.85% mortgage a few months ago. We are currently working on paying down debt and will then work on the mortgage. The great part is that if we pay just $150 more on the payment a month, our 15 year mortgage will be a 10 year mortgage. Right now, we have only 2 debts to pay off before we put big chunks toward the mortgage. We have less than $2,000 on hubby’s 2007 vehicle and then $7500 on his credit card from a previous marriage (over 7 years ago!)

    Our mortgage is LESS than our annual income by $10,000. The whole reason for wanting to get out of debt is so that we can get out of jobs that we dont enjoy and be able to live off of less money. And possibly starting a family. The mortgage isnt much at all – $420/month (not including taxes and home owners insurance.)

    To pay off our mortgage in 3 years, we’d have to pay $1750/month. That’s not going to happen. But we definitely will have it paid off in 10 years or less…easily. And with me turning 30 in just a few months, it’s great to know that we can be debt free including the house by 40 (or sooner!)

  79. 79. Sampson

    Sorry Geoff but I don’t agree with your numbers what so ever.

    You yourself mention you have managed to pay off 100k in 3 years. So to save $300-$500k would only take 9+ years. You yourself could buy a place in Vancouver in your 40′s. Average price in Vancouver is misleading, yes, very few Canadians can buy a detached house in Vancouver proper, those who do, pay 60% of gross income towards housing, but they make that choice.

    Whether its a depressing scenario or not, that’s reality. Many posters, yourself included have already pointed out that the 1X salary mortgage is not reasonable in most major cities, that’s what makes his ‘other’ tips for paying down sooner much more relevant to us mortals than to FT himself. 4 years off a 25 amortization by making that extra 2 payments per year is huge for most Canadians.

  80. 80. Jimmy Dean

    I am happy for FT. Kudos to him. But the key point is Location..Location and Location. In urban centers like Toronto, Vancouver, Calgary, Montreal etc. average income to home price ratio is 1:5

    You cant find a decent place for 250K in these places probably a condo. FT surely is living in small town. Even with 125k down payment, detached home in GTA costs 500K in decent area. Thats good 375K in mortgage. To pay this mortgage with average income 100K/family will take at least a decade with considerable discipline (living on Campbell Soup) and luck (hoping not to loose job and not be divorced).

  81. 81. nobleea

    “In urban centers like Toronto, Vancouver, Calgary, Montreal etc. average income to home price ratio is 1:5″

    Hint hint…maybe one shouldn’t buy a house in that scenario, and rent instead. In Vancouver for example, renting makes way more financial sense.

    Prices always revert to mean. Sometimes quickly, usually slowly. 20% drop seems reasonable at this point (or flat for however many years it takes for inflation to equal a 20% drop).

  82. 82. Joey

    Nice to see other people are willing to make small sacrifices in the short term for huge benefits in the long term.

    My wife and I are 33 and 35 and are currently renting. We saved over 380K and will be looking to buy a house for cash in the new year. Once the house is paid in January we will be using about 30K per year and maxing out our RRSPs and using the refund to max out our TFSAs. It’s nice to be mortgage free!

  83. It is true that you have to carefully select the location before you choose where to buy a property. And also the strictest criterion is financial condition of buyers. The promising way how to support estate market is to put more pressure on banks to prepare more varied and accessible mortgage products.

  84. 84. Geoff

    @ Sampson – while we have paid down $100K in principle in 3 years, that’s not the same as saving $100K while paying market rates for a house rental @ 2000K / month we’ll say. And this is at a time when interest rates are very low.

    @ Nobleaa – As for renting, I’m a huge advocate for renting over buying; however when you have children you feel a need to put down roots and have some security over where you will raise your children. You may not feel that way, and garth turner definitely doesn’t feel that way (despite him owning his own home) but that’s how I feel. Also it’s hard to find quality house rentals in Toronto for under $2K/month. You can find a floor,but a wholehouse is hard to find.

    Paying down our mortgage is a primary goal of our finances, that and staying out of debt in our 30s; I applaud FT for accomplishing his goals and encouraging others to follow his other tips; but feel that his posting would have benefited from being more clear with his figures in the beginning.

  85. 85. Pinyo

    Congratulation. That’s quite an accomplishment.

  86. 86. Steve

    That’s fantastic. I’m impressed – hopefully I’ll join you before too many years have gone by!

  87. 87. Elena

    Great article and very motivational!
    I think I will start putting some extra money towards my mortgage every month as well.
    In spite of a tax deduction, everyone’s dream is to have their house free and clear, especially when you are heading towards retirement.
    Thanks for your atricle, it’s greatly appreciated!

  88. 88. QCash

    Congrats FT! Enjoy your new found freedom!

  89. Congratulations! That is phenomenal news for you! I love reading stories of successful home owners taking responsibility very seriously and able to achieve their goals.

    Cheers,

    Oliver

  90. 90. Brian

    We focused on how we purchase (everything) which makes how we pay a much easier proposition. eg. We mortgaged 1/3 what the bank offered, bought in a smaller community with good living standards but small city prices, bought a fuel efficient car and car pool to work, buy household items on cash back credit card and pay off every month, buy used tools-furniture-whatever that still has significant life in it instead of new.

    I car pool to work and my wife drives 10 minutes to her work, reinvest dividends from non-registered investments and work bonuses into the mortgage every quarter.

    Kid on the way, house being renovated, 1.5 years on the mortgage clock.

  91. 91. dustin

    bought my house at 25 and paid it off at age 34, just dicipline, no fancy vacations or cars during that time, never ever lease a car, because it is no different then renting an apt. by a used never new car and learn how to fix it or buy a used reliable car. new car is a total waste of money i (2 year ago) bought a gorgeous audi a6 black mags etc…..for 20k this car new is 65k + tax, nobody knows the age or mileage it runs and looks new take care of your things and never skip maintenace will cost much more down the road. good luck everyone.`

  92. 92. dustin

    don’t carry a balance on your credit cards, interest crazy high. if you can’t afford it don’t buy it. pay cash when you can and moderate your expenses, restaurants are very expensive and is a treat, learn how to cook and make nutritious food at home with someone you love. i would limit a resto meal to once a month, some people eat out 2-3 times a week, add up those bills people that is expensive. who needs expensive designer cloths? you do? expensive for nothing, so stop complaining about your debt if you are doing all of the above. it takes dicipline to be debt free. i just turned 40 and have zero debt, it’s a joke my house cost me 500 month all included, taxes, cable heating everything for a beautiful 2200 square foot home on a quiet street in a nice suburb of montreal. now i have money at age 40 do to whatever i want. vacation, car no problem , but i do want to retire with money in the bank so i still can’t go crazy but i sleep very well at night knowing that everything is paid and food, shelter paying my bills are a piece of cake.

  93. 93. KP

    I’ll add my story too, albeit a little late.

    We each owned a home, and sold them to purchase our ‘forever’ home, if things don’t change too greatly. @ 455k in Calgary, and with the downpayments from both our other properties, our mortage was only about 1.5x household income.

    The plan was to make the maximum 20% payments for 4 years and then just let the mortgage payments finish the rest off by the time the 5 year term was up :) – We won’t have to renew. The money for these came out of my husbands company stash, and my taxable investments – we will both still be maxing out our TSFAs and RRSPs during this time frame. This has some opportunity cost to it, but having just been through a layoff cycle in calgary it is well worth the safety it provides. We have intentionally put off having children until our last payment is made, but I’m enjoying a peak fitness level and a few triathlons before I have to go into baby making mode – at 29 years old it’s not too much to wait another year. Expecially knowing that we’ll both be able to work part time through out our child rearing years.

    The plans with our mortgage money once it’s freed up (and while we are still making it) is to put it in a renovation fund, and to pay cash and truly make this our forever home – or to trade up if that becomes more desirable – hopefully remaining mortgage free in the process. OR to work less and be home more.

  94. 94. AB

    Is it better to increase the payments or to make lump sum paymnents? In which situation you will end up paying less interest.

  95. 95. Oli

    @AB
    If you can do a lump sum today equivalent to your increased payments for the rest of the year, then do the lump sum today (so you don’t pay interest on on that money anymore).

    If the question is: should I accumulate the money for 12 months and then dump that as a lump sum I say increase your payments… unless you have a GUARANTEED way of making more money on it than your mortgage rate (e.g. if your mortgage is a t 2.25% but you somehow have a 3% rate on a savings account).

  96. 96. DANE PRAED

    Congratulations!!! It’s a wonderful feeling isn’t it? :)

    And to everyone else, I highly recommend making a priority of paying off your mortgage asap! Increased payments, accelerated bi-weeklies, lumpsums … they all do wonders!!! We paid off ours in 5 years and immediately downshifted to part-time work. Why spend 5 days at the office when your housing bill has gone? We’re absolutely loving the new more balanced lifestyle. Way too many books to read, podcasts to listen to, and lectures to attend etc and not enough hours in the week if you’re working full-time. It’s amazing what a difference the extra money makes! I can bank one of my two monthly paycheques and not even use all of the second to cover the remaining bills.

  97. 97. YoungGun

    I just graduated from University and was lucky enough to land a pretty solid job in Calgary (oil and gas). I have a little bit of student loans to pay off (around $7k) but the monthly payments are quite small. My first priority is to start saving for a down payment because I want to own property as soon as possible. I’m currently living with a room mate in downtown Calgary, approximatley 5 minutes walking distance to work. Because I split with the roommate, I only pay $500/month for my apartment and have sold my parking spot in downtown for a $125/month profit. After paying all my bills and budgeting for all my necessities, Im saving close to $2k/month. Ideally, I want to save up for a down payment on a condo or apartment close to (not necessarily inside) downtown. How long do you think this will take me ? How much of a down payment should I aim at ? Looking at condo prices today, I am seeing anywhere from $250k-$350k for a decent place. What should i do with that $2k/month that I have left over to speed up the saving process? Any tips would be much appreciated. Thanks !

  98. I’ve recently signed for a 15-y mortgage but I want to pay off it in seven years.
    Your tips will surely helps me!

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