Last Updated on October 11, 2019 by Dave Farquhar
Living mortgage free isn’t a pipe dream, and it doesn’t necessarily mean you have to live in a hovel to achieve it. Ordinary people on ordinary incomes in ordinary homes can generally achieve it in less than seven years. I know, because my wife and I did it. Twice.
My wife and I live in a middle-class suburb in a good school district. By some standards our 1,600-sqft house is small, but we can live there comfortably as a family of four. It took sacrifices to pay off, but I wouldn’t call it extraordinary sacrifice.
Mortgage free benefits are so great, we did it twice
My wife and I paid our house off in 2008. Then we got into real estate investing in 2010 and financed it in part with a home equity line of credit. We made the decision in 2017 to pay off the HELOC, so once again, we find ourselves living mortgage free.
We went into debt a second time because we had a hard time buying our first properties with conventional mortgages. We judged the 2010 timeframe as a once in a lifetime opportunity, so we did it.
Living mortgage free takes a tremendous amount of pressure off you. We recommend it.
I also don’t want you to think you have to be wealthy to live mortgage free. You can do this on any income, even a modest income. When we did this the first time, I was a run-of-the-mill systems administrator. I was good, but I hadn’t made senior yet, and didn’t have senior-grade pay. Living mortgage free starts with using the money you already have in a smarter way.
How to get mortgage free
Sold? Good. Here’s how to get mortgage free. All you do is make extra payments. Write a little bit bigger check every month, and you can pay off your household debt years faster.
The less debt you have, the faster it works. Basically you pick a debt, and apply at least 10 percent of your monthly income to that debt in addition to the monthly minimum payment. After you pay off that debt, take that payment. Pick another debt, and add that previous number to that monthly minimum payment. Keep going until you’re done.
Some people recommend paying off the lowest balance first. Others recommend paying off the highest interest rate first. The second makes more sense mathematically. The first may make more sense psychologically. When I do the calculations, the difference between the best possible method and worst possible method is only a month or two. Having a plan and sticking to it is far more beneficial than doing nothing. Don’t let any debt-free proponent tell you his way is The One True Way™. The best way is the way you can actually stick with.
There are tons of debt repayment spreadsheets out there that you can use to help run the numbers. I use one from Vertex 42. Feel free to try that one out, or look around for one that you like better.
I also don’t think the legalistic stance that debt is a sin against God is productive. Sometimes it’s unavoidable and if you obsess over it, it makes it harder to get out, not easier. That defeats the purpose.
Why it works
When you make your regular mortgage payment, you’re mostly paying interest, especially in the early years. Want to know something depressing? In 2014 we bought an investment property, and after three years, we’d only built up $3,087 in equity in it. Paying off a 30-year mortgage is a long slog.
Kicking in extra reduces that interest payment, so more of your monthly minimum goes toward accumulating principal and building up equity.
Here’s another secret: You can pay off debt in ¼ the time precisely because the banks won’t loan you more money than they think you can pay off in about seven years.
What about the mortgage interest deduction?
The most common argument against paying off a mortgage is that you lose the mortgage interest deduction. The mortgage interest deduction is significant enough that it certainly warrants paying off your credit cards, cars, and other debt first. But once you eliminate that other debt, it makes sense to go ahead and get rid of that mortgage. You’re only getting back nickels on the dollar, if you can use it at all.
The average family makes $52,000 a year. At that pay grade, it often doesn’t make sense to take the mortgage deduction. And depending on that year’s tax laws, you might not even be able to use it depending on your income. Not every income level is eligible. That means many people who are worried about losing the mortgage interest deduction may not actually be using it anyway.
Where to find the money
There are lots of creative ways to find the money to pay your debt off a little bit faster. Living off one salary, keeping your cars longer, and applying windfalls to your debt all help tremendously.
Not all jobs pay a bonus, but many do. Instead of using the money to take a dream vacation, use 10 percent of it to buy something nice and apply the rest of it toward your debt so you can gain financial independence.
If you get a raise, do the same thing. Instead of buying a new car and sinking your raise into that payment, increase what you pay on the bills you already have. That money can dramatically increase the speed at which you pay down debt.
Living mortgage free by downsizing
Some people advocate getting mortgage free by radically downsizing. That’s an option, but it doesn’t have to be your only option. And you don’t necessarily have to step down to a 600-square-foot house to get there.
You have to keep in mind that moving costs time and money, so unless you have another reason to move, it may very well make more sense to put the money you’d spend moving toward paying down your debt instead.
We could have easily downsized. All it would have taken is waiting for a lease to expire, then not renew the lease, move in, and rent out our bigger house. Even in our situation, which is admittedly unusual, it didn’t make sense to make that change.
Going completely debt free
As I insinuated, my wife and I invest in real estate. So we have plenty of mortgages–yes, plural–but not one on the house we live in. In the long run, real estate investing is more profitable when you control more property, even if it means borrowing money. We have a plan for paying the other properties off too, but we started with our own house.
The reason is simple. If I have a really bad day, I can get in my car, drive home to my house, sit down on my couch, and figure out what I’m going to do. I don’t have to take a job in a sweatshop just to keep a roof over our head. The roof, the car in the driveway, and everything in it are ours, outright.
Advantages of living mortgage free
In 2002, I bought the house we live in how. The same week I made the purchase, I attended a party at a coworker’s house. Our boss was there. I mentioned to everyone that I’d just bought a house. I’ll never forget the look on my then-boss’ face. The look said, “I own you.” In no time, all the work nobody else wanted to do piled up on my desk, since I was the junior guy.
By 2008, I was married and had moved on to a job that paid better, though I still got a lot of the work nobody else wanted. When we paid off the house, I walked into work the next day and announced what we’d just done. “With your house paid off, you can work at McDonald’s and be OK,” my boss observed.
And like magic, the work nobody else wanted stopped landing on my desk. Instead, I started specializing in the stuff I was actually good at.
The mortgage free feeling is nice. Things changed like flipping a switch. From that day on, I got the work I was genuinely good at doing, not just the work nobody else wanted. Life wasn’t perfect, but it took a big step in the right direction.
Not having that debt looming over you is like knowing martial arts. It gets really hard to bully you because you don’t have that four-figure mortgage payment looming over you every month. And when that pressure’s off you, you can think more clearly and make better decisions. Believe it or not, living mortgage free is good for your career too.
David Farquhar is a computer security professional, entrepreneur, and author. He started his career as a part-time computer technician in 1994, worked his way up to system administrator by 1997, and has specialized in vulnerability management since 2013. He invests in real estate on the side and his hobbies include O gauge trains, baseball cards, and retro computers and video games. A University of Missouri graduate, he holds CISSP and Security+ certifications. He lives in St. Louis with his family.