Death to the Mortgage

It's Official

2011-08-15T23:53:00.001-04:00

Today, almost four months after we sent our final payment to our lender, we received a Release of Mortgage in the mail. It includes a cover letter from the lender, along with a very official-looking Release document, with a notary stamp and a sticker from the county Register of Deeds.

I'm glad to have it. I was just wondering this weekend when/if we'd ever receive anything more than an initial form letter from our lender stating that our loan had been paid in full.

The cover letter that accompanied the Release document includes a statement from the lender, encouraging us to "consider [them] for future mortgage needs."

I hope we have no mortgage needs anytime soon.

Who I'm Working For

2011-07-01T16:10:00.002-04:00

(Or should this entry's title be more correctly phrased as "For whom I'm working"?)

I became a first-time homeowner (aka mortgage holder) almost ten years ago. From that time until May 2011, not a month passed when I was not obligated to send a mortgage payment to a lender. Although the monthly amounts were never financially crippling, they were also never trivial. Therefore, it was crucial that I maintained a steady income to support my housing.

Over the past decade, there have been several cycles in the economy and job market during which the prospect of maintaining steady employment seemed pretty bleak. When rumors of layoffs would circulate through the office, the collective level of fear would rise among the employees. When jobs were eventually cut, and colleagues let go, I remember feeling a mixed set of emotions: relief that my job remained, concern for friends and co-workers who had been terminated, disdain for the extra work that the remaining employees would have to pick up, and an uneasy feeling that another round of cuts would follow in the not-too-distant future.

Now that the mortgage is dead, work has become less emotional. Although my wife and I still have financial obligations to meet (including taxes, insurance, and consumption spending), none of these is as regular nor as substantial as the monthly mortgage payment used to be. Therefore, I have the feeling now that I am working more because I choose to do so (in order to improve my own financial situation), instead of working because the mortgage lender compels me to do so.

This doesn't mean I've suddenly started slacking off at work, acting like the protagonist of Office Space after his epiphany. However, mentally I feel more like work is something I choose to do -- because it matches my future goals -- instead of a task that has been chosen for me. So, to follow up with the title of this entry, I'm not working for the mortgage company. I'm working for me.

Webster defines "Freedom" as "the absence of necessity, coercion, or constraint in choice or action". By paying off the mortgage I have given myself some additional freedom: to work, or not work, or work less or more. My wife benefits from this as well. It's a great reward for the completion of the project!

Refocusing

2011-06-19T21:33:00.006-04:00

We had a good system in place. We spent time up front to create a plan to kill our mortgage. After a few months, it started running on autopilot. We didn't have to give it much additional thought. And ultimately the debt withered and died. Our mortgage-killing plan can be stated in its most basic form thusly:

Step 1. Minimize expenses.
Step 2. Allocate all extra cash to mortgage prepayments.
Step 3. Repeat as needed until mortgage is dead.

Now that we've paid off our mortgage, there's a gap in the plan where step 2 used to be. What do we do with our extra cash flow each month?

I have to admit, after we saw the words "PAID IN FULL" appear on our online mortgage account, my wife and I slacked on step 1 during the month of May. I think we both needed a month to celebrate our accomplishment and not think too much about spending. But now that we're into our second month of mortgage-free living, I fear we will lose our commitment to minimizing our unnecessary spending if we don't refocus our efforts on new priorities.

Something else must fill the void left behind by debt reduction.

We need a new plan. But it won't just happen on its own. We have to make a conscious decision how to allocate our money going forward.

Here are a few of the things we'd like to do with our future "non-mortgage" payments:

Save and invest for current income (pre-retirement)
This is a long-term goal. I envision this as a debt-reduction snowball, only in reverse. An investment snowball? I am thinking of the classic personal finance book Your Money or Your Life when I ponder this goal. This will have to wait until we replenish our short-term "emergency" savings. I'm feeling the same impatience toward this saving/investing goal as I was toward the mortgage elimination goal. I have to remind myself that this goal is a marathon, not a sprint.

Make some improvements to our home
Now that we own 100% of our house, wouldn't it be nice to start to tackle some of the projects we deferred while we were paying off the mortgage debt? Potential projects on our list range from smaller cosmetic enhancements (paint and baseboards) to more elaborate undertakings like refinishing the basement or remodeling a bathroom.

Be more generous (gift-giving and charitable donations)
We cut back on charitable donations while we were paying down our debt. We'd like to get back into a habit of giving. And although we were not stingy with gift-giving during the project, we would now like to take advantage of our improved financial situation to give nicer gifts when appropriate.

Allow for more discretionary spending ("wants")
This category is a potential budget-killer. There are whole host of items and experiences that we're tempted to purchase now that our debt is gone. The key here is moderation: spreading these expenses out over time, and deciding which purchases will give us the most enjoyment/satisfaction/utility.

We can't accomplish all of the above at once. So far, we've been saving some of our extra cash, although we did give some gifts to our parents this spring, and the discretionary spending has been higher than usual. We need to sit down and create a budget (with actual dollar amounts or percentages) so we can keep track of these competing goals. I'm confident with a little work, we will put ourselves in a position to reap the rewards of our efforts in the future.

That Time of the Month

2011-05-23T18:26:00.003-04:00

This is the time of the month (the beginning of the 4th week) by which I've always made the mortgage payment in the past. Only May 2011 is different. There's an empty spot in the checking account ledger where a big withdrawal used to hang out.

(Warning: this entry may read as if I'm bragging...but I'm really just feeling the satisfaction of our new financial situation. Finally reaping the benefits of our hard work, perhaps.)

We're actually feeling a double benefit from having the mortgage paid off. Not only are we avoiding the "mandatory" monthly payment -- we're also avoiding the extra principal payment which we had become accustomed to saving during the DTM project. The extra principal amount varied, but looking back at our payments, we averaged over $2,800 in extra payments each month (excluding the large payoff amount at the end of the project).

What this means is that the extra cash in our new monthly budget is somewhere north of $4,000.

Our savings could definitely use some replenishment. We drained a large portion during the final two months of the project to deliver the final two death blows to the mortgage debt. But using the very rough $4,000 figure above, we could have our savings account balance back above the pre-payoff balance by the end of this calendar year.

But why stop there? Why not take advantage of our learned frugality and continue to benefit our overall financial situation? At the start of the project, I said that one of the things I wanted us to gain from a mortgage-free lifestyle was increased freedom from obligations, so that we could live on a single salary (or two part-time salaries) if we so choose. So starting next month, we are living on one salary. No, neither of us is going to quit (or change) jobs, but we will be directing 100% of the post-tax portion of one of our salaries into our savings. Since we both make a similar take-home pay, it doesn't really matter which of our salaries covers expenses and which goes into savings -- it's a communal pot of money anyway. It will be automatic. We won't even think about spending what we don't have in our checking account.

With this plan in place, we'll have the "emergency fund" portion of our savings fully restored by the end of the summer. After that, we can start making decisions about what to do with the surplus. I'd love to start doing some more dedicated investing for our future -- allowing our assets to start contributing to our income, resulting in our money working for us.

In addition to saving and investing, there are some other things that we gave up at the end of 2007 which we will likely start to re-integrate into our planned spending. I'll elaborate on those in a future entry.

Monthly Summary: April 2011(Paid in Full)

2011-04-30T22:49:00.003-04:00

This may be a bit anticlimactic considering my previous entry, but for completeness I'll summarize our April mortgage activity using the format I've become accustomed to for more than three years now.

Our April mortgage payment was the 26th of 120 scheduled payments on our ten-year loan. It was the 40th payment since we began our DTM project at the start of 2008. And it was also the last mortgage payment we'll ever make on this house, as the loan is now paid in full.

We began the month with an outstanding balance of $19,107.10. After careful consideration, we decided to transfer enough money from our savings to pay off the remaining balance. Because we paid off the balance before the last day of April, the interest was charged at a daily rate (24 days). Along with the remaining balance, we paid our lender $58.91 interest and a $17 recording fee. Our bank charged us a $25 wire fee for the privilege of sending certified funds to the lender. So the total cost of dealing the mortgage its fatal blow in April was $19,208.01.

Until now I've been listing the amount of interest we save each month by comparing our actual interest payment to the amount of interest we would have owed the lender if we hadn't made prior payments to principal. I call this the "realized" amount of interest. Since the loan is gone, we not only realized the interest savings for the month of April, but also for all future months until the loan would have been paid on the standard amortization schedule (March 2019). Because we would have owed the lender $37,133.57 of interest over the full life of the ten-year mortgage, and because we only paid the lender $9,735.76, we have now realized $27,397.81 in interest savings on the ten-year loan by killing it this month. (This doesn't include interest savings from our original 15-year mortgage which we refinanced in early 2009 -- by including that amount, the total is $28,435.55).

If we had never made any extra payments on our ten-year loan, the remaining balance at the end of April would have been over $121,461.

We reached our original five-year goal last month. We reached our revised four-year goal this month. From start to finish, it took us three years and four months (40 months total) to pay off the mortgage once we made up our minds to do it as quickly as we could manage.

Strangely enough, our achievement doesn't yet seem real. I think it will take at least another month (when we start seeing more unallocated cash in our budget) before we start reaping the benefits, both financially and psychologically.

Although the mortgage is finally dead, I plan to keep this blog up and running for a while. I would like to reflect a bit on our experience over the past few years, and describe our new mortgage-free (and 100% debt-free) existence. At some point in the not-too-distant future I will probably decide that I've had my final word, and can close the book on this project. But then, of course, a new project will begin.

I'd like to dedicate this month's entry to my loving wife, who provided us the courage to set bold goals, the tenacity to help keep ourselves on target, and the hard work (and paychecks) to back it all up. Congrats, girl! You deserve it.

Goal Complete

2011-04-26T07:54:00.003-04:00

Decision Reached

2011-04-24T21:19:00.002-04:00

This will probably not surprise anyone who knows us (or who has been following my blog), but my wife and I ultimately decided that we were comfortable with the choice to pay off the mortgage this month. We weighed the risks against the rewards and are mentally ready to aggressively move forward. Tomorrow I will head down to the bank to send a wire to my lender for the remaining balance and interest, with a little extra thrown in to cover recording fees and the cost of the wire itself.

Our lender has an automated telephone number which provides information about the loan (balances, history, etc). One of the options provides mortgage payoff details. However, the lender only offers two choices after selecting the "Loan Payoff" branch of the phone menu: "Press 1 if you are selling your home. Press 2 if you are refinancing your loan." Well, of course we are doing neither. I guess not too many people elect to pay off their mortgages in the way we've chosen.

The lender is also very clear that they will only accept final payoff in the format of certified funds (bank wire or cashier's check). I doubt they would make an exception in our case, even though they were happy to cash our personal check last month for an amount which is larger than our remaining mortgage balance. At this point I'm not interested in pleading or arguing with customer service anyway. I'll just follow their standard procedures in an attempt to minimize the chances that something gets fouled up in the process.

For the sake of disclosure, here are some of the reasons we made the decision to go ahead with the loan payoff now, instead of waiting a few more months so we wouldn't have to dip so far into savings. This list is in roughly descending order of importance.

We are mentally ready to be done with this debt
We have budgeted for major expenses through the end of 2011, and paying off the mortgage now would not negatively affect our ability to meet expected future obligations
We do not feel our employment situation is at risk for the near future (at least through 2011)
We have already transferred cash out of our savings account and are comfortable with the balance
We expect to rapidly replenish our savings after the mortgage payments are history
We have dealt with a lot of maintenance issues (repair and/or replacement of appliances, etc) over the past five years, so the risk that something will break or need repair in the near future is relatively low (knock on wood)
By paying off the mortgage now, we will avoid paying some additional future interest

I'll provide an update over the next day or two when the transaction is complete.

Mortgages and Emergency Funds

2011-04-09T09:37:00.002-04:00

A widely accepted personal finance "best practice" is the establishment and maintenance of an emergency fund which can be used to cover unexpected expenses, such as appliance failure, car replacement, home repair, or income/job loss. Depending on the source, typical recommendations for emergency fund goals range between six and twenty-four months of living expenses.

As our outstanding mortgage balance is now less than the amount we have saved in our emergency fund, it occurred to me that there is a direct relationship between the two. After a mortgage is gone, monthly expenses will suddenly drop. Therefore, when basing an emergency fund goal relative to future monthly expenses, it's possible to find a point at which it is beneficial to use the emergency fund to pay off the mortgage using the amount of savings which is earmarked for future mortgage payments.

Here's a hypothetical example using nice round numbers. Imagine I have a mortgage with a required monthly payment of $1,000. I also have a goal to have one full year (twelve months) of living expenses covered by an emergency fund. Regardless of my other monthly obligations, if my emergency savings are fully funded, $12,000 of the total saved amount should be allocated to future mortgage payments (twelve months of $1,000 payments). Now assume I have paid enough of my mortgage debt that the outstanding balance is $12,000. It probably makes more sense for me to take the $12,000 out of emergency savings and use that to pay off the rest of the mortgage. If I don't, then I'll end up paying the $12,000 eventually (month by month), but because a portion of my monthly mortgage payment goes toward interest, it will take me more than twelve months to pay off the remaining debt. This means I will end up paying more than a year of extra interest, and my total mortgage expenses (including interest) will exceed $12,000.

Of course, by withdrawing the $12,000 from the emergency fund, I'll miss out on the opportunity to earn interest on my savings. But since an emergency fund will typically be invested in fully liquid cash or money markets (not tied up in CDs or other investments which may need to be sold at a loss on short notice), I'll likely be earning a very low rate on my savings. If the savings rate is less than the mortgage interest rate (also likely), it will provide me a greater financial benefit to get rid of the mortgage right away.

If my required monthly mortgage payment also includes an escrow amount (intended to cover property-related expenses like taxes or interest), it will make it even more favorable for me to pay off the mortgage right away, because less of the monthly mortgage payment will be allocated to principal. So in the example above, it might take me fifteen months to pay off a mortgage with a $1,000 required monthly payment (principal + interest + escrow) if the remaining balance is $12,000. This means I would be on the hook for fifteen months of interest. As for the escrow portion, it's probably a wash -- once the mortgage is paid, my lender will return any accumulated escrow balance to me (the former borrower), which I can drop into my emergency savings, likely earning a higher rate than the pittance which is usually paid on escrow accounts. Of course it will be my responsibility to pay my own taxes and insurance after the mortgage is gone, but if I've been responsible enough to pay off my mortgage, it's probably safe to assume I'll be responsible enough to pay my own taxes and insurance as well.

Since the emergency fund is meant to cover lost income as well as unexpected expenses, I might expose myself to more risk if a sudden major expense were to crop up after I'd used my emergency savings to pay off the mortgage. It's this consideration -- trying to predict the unpredictable -- which keeps my wife and I from immediately using our savings to pay off the rest of our mortgage right away. It is tempting, however. Once the mortgage is gone, we'll be able to replenish our emergency savings in short order. There is a window of time where such a move would leave us vulnerable, though. We're still working on this decision. I'll likely elaborate on this again when we've run some numbers and come to an agreement on how to move forward.

Monthly Summary: March 2011 (Five-Year Goal complete)

2011-03-31T23:01:00.002-04:00

My wife and I made a larger dent in our mortgage balance in March than we have in any prior month, by far. There were two reasons for this. The first, as I discussed earlier, was because I received a bonus in March which we chose to allocate entirely to our mortgage debt. The second reason is that we elected to withdraw a portion from our savings to reduce the mortgage balance even further. Our savings had reached the point where it was more than adequate to serve as an emergency fund, and rather than have extra cash earning next to nothing in a savings account, we made the decision to use the money for debt reduction, saving ourselves future interest payments.

In total, we added $28,000 additional principal to our March mortgage payment. It's very satisfying to see the debt drop from the $40K range down into the $10K range (skipping past the 30s and 20s in one fell swoop). By doing this we effectively achieved our original goal that we set at the beginning of this project: even if we don't add anything additional to principal going forward, the mortgage will be paid off within the five-year goal period (no later than April 2012) simply through our regular monthly payments. It feels great to have that locked in, regardless of what happens in the future.

The March payment was the 25th of 120 scheduled payments on the ten-year mortgage, and the 39th overall since this project began in January 2008.

At the beginning of the month the balance was $48,643.11. Adding the extra $28,000 to the required payment amount reduced the debt to $19,107.10 at the end of the month.

We realized $289.59 in interest savings this month, bringing our total realized interest savings to date to $4,463.07.

The mortgage balance is currently $103,425 less than it would be if we'd never made any extra payments to principal. If we stopped allocating extra money to the debt, we'd still pay off the loan six years and ten months early.

As mentioned, we've effectively reached our original five-year goal (even though the mortgage isn't gone yet). We have nine months left to pay off the mortgage within our revised four-year goal; we'd have to average combined principal payments of $2,123.01 to meet this goal.

We have reached perhaps the most important milestone yet in this project. My wife and I now have enough cash in our accounts to eliminate the mortgage completely. We need to have a discussion about our comfort level with reduced cash on hand, because paying off the mortgage now would mean that our savings would be substantially depleted. Without future mortgage payments, we should be able to rebuild the savings relatively quickly, but if something was to happen in the near future, it might put us in a bind. I'll elaborate on this pending decision in a future entry.

I feel like we have reached the threshold of the end of the journey now. It's just a matter of deciding when to pull the trigger and put the mortgage out of its misery.

Bonus

2011-03-12T10:42:00.002-05:00

I've worked for my employer for more than a decade. My stated salary includes a yearly bonus which is rather predictable -- it does not vary much from one year to the next, and can be considered part of standard compensation (that is, if the company remains profitable, the bonus will be paid).

However, my employer also offers a true bonus, which is a more rare event. It is a challenge to earn (it requires a stellar performance review score), and it is not immediately paid (it has a vesting period of two years, on top of an announcement and payout schedule which means just over two years and three months pass between the time the bonus announcement is made and the final payout occurs).

I unexpectedly earned this true bonus in late 2008, around the time that the DTM project was a year old. I completed the vesting period at the end of 2010. Yesterday, at long last, the bonus was paid to me.

I consider this a windfall for our mortgage payoff. It was something I never counted on during the initial planning phases. The timing of the payment almost assures us that we will reach our original five-year goal, and makes it extremely likely that we'll be able to meet our revised goal of paying off the mortgage in the 2011 calendar year.

The company mood between the end of 2008 and the end of 2010 (my bonus vesting period) was cautious and stressful. Rumors of layoffs turned into actual layoffs, some grand in scope and some more focused. Just after one wave was complete, another rumor would crop up, followed by more cuts. It made it impossible to relax, and job security became a myth. Morale plummeted. Had I been targeted during any of those "reductions", my deferred bonus would have been lost.

Fortunately for me, my group was less affected by job losses than other areas -- we were aligned with a part of the business which remained profitable even during the lean times. I will readily admit that good luck played a role in my continued employment -- I knew many extremely intelligent and capable people who were let go because the company mandated more aggressive cuts in their lines of business. Sometimes, it's better to be lucky than good.

Meanwhile, my wife moved into a higher-paying job in the second half of last year. She's been very pleased with the move and considers this to be much closer to her "dream job" than her prior position.

Given the wider employment situation across the country, it almost feels tactless to share the news of personal success when set against a backdrop of others struggling to make ends meet. I know several people who lost their jobs in the past few years who have not been able to find suitable replacement work -- they face bleak prospects with low-paying options or very short-duration job stints interspersed with periods without an income. I try not to take our current situation for granted. Who's to say that my wife and I will both be employed at this time next year? I think it's prudent to pay off the mortgage while we have the means to do so. Once that monthly obligation is gone, our cash flow would improve significantly: given our current lifestyle, we could easily make ends meet indefinitely, even if only one of us was earning an income.

I find myself trying to envision our lives after the mortgage is gone. I'm encouraged to work towards a lifestyle which is much less dependent on earning a full-time salary. Developing multiple income streams would help offset the risk of a sudden job loss. I'm sure that will be our next project.

Monthly Summary: February 2011

2011-02-28T07:47:00.002-05:00

The snowy winter continues in New England. We did get a bit of a break last week, when I rode three days to work on my bicycle (and I found out that I'm not in my best cycling shape). But today we awoke to freezing drizzle, and the road surfaces are very slick.

My wife and I are leaving tomorrow for our annual trip to a mountaintop cabin accessible only by foot travel (snowshoe). Snow is welcomed up there. But once we return, I'll be looking forward to signs of spring.

In February we made the 24th of 120 scheduled payments on our ten-year mortgage, which was the 38th payment since we began the DTM project.

We started the month with a balance of $52,802.39. We added $3,000 extra principal to our regular payment, which reduced the outstanding loan amount to $48,643.11 at the end of February.

We realized $276.85 in interest savings this month. We've saved over $4,173.48 of interest since we started making prepayments on our mortgages.

Our mortgage balance is $75,136 lower than it would be if we had never made any prior extra payments. If we had to stop making prepayments at this point, we'd still pay off the ten-year mortgage five years and two months ahead of schedule.

Twenty-two months remain in our original five-year goal period. Ten months are left in our revised goal of eliminating the debt by the end of 2011. We must average $2,202.87 in monthly principal payments to meet our original goal, and $4,846.31 monthly to meet our revised 2011 goal.

March should hopefully be a good month for several reasons: the return to daylight saving time, the official start of spring, and a bit of extra income for us. I'm looking forward to all of it.

Monthly Summary: January 2011

2011-01-31T17:37:00.002-05:00

Compared to a year ago, this January has been very snowy in New England. I have hardly been able to ride my bicycle at all, because the snow piles on the side of the roads are intruding into the bicycle lanes, forcing me to ride in the same area as cars. As much as I enjoy riding (even in the winter), I've had to put the cycling on hold for my own safety (more because I fear drivers won't be able to avoid hitting me on the narrow, icy roads than for any other reason).

We made good progress on mortgage killing this month. My wife's new job (as of last October) comes with a higher salary, so we've had more cash to allocate to the debt (I'm definitely not complaining about this).

Our January payment was the 23rd of 120 scheduled payments on our ten-year loan, and the 37th payment since we began the project a little over three years ago.

We began 2011 with a balance of $58,121.17. We scraped together $4,000 to include with our required monthly payment, which in total reduced the debt to $52,802.39 by the end of January.

We realized $260.53 in interest savings this month, bringing our running total to $3,896.52 since the beginning of the project.

Our mortgage balance is now $71,859 less than it would be if we had never made any prepayments on the loan. Because of our prepayments to date, we're guaranteed to pay off the mortgage 5 years early (on a ten-year note) even if we never make another extra payment from this point forward. That's right...we cut the term in half in under two years.

We have 23 months left in our five-year goal period (but only eleven months considering our revised goal to rid ourselves of this mortgage in calendar year 2011). We must average $2,295.76 per month in principal reduction to pay off the loan within our original goal, or $4,800.22 per month to meet our revised 2011 goal.

These next few months are going to try my patience. Now that I can see the light at the end of the tunnel, I'm tempted to take all of our free cash and dump it on the loan to get rid of it once and for all. But for now, at least, we are sticking to our plan. Hopefully we'll be able to meet our updated goal and be done with mortgage payments by the end of this year.

Pay Down the Mortgage Early, or Invest?

2011-01-20T18:41:00.004-05:00

A popular Personal Finance topic of debate concerns the wisdom of using extra cash to either pay down a mortgage early, or to invest. By now, it should be clear which side of the fence we fall on: DEATH TO THE MORTGAGE!

This article makes the opposite argument. I completely disagree with the author's point of view, but I was amused by the numerous comments offered up by readers. Some are logical, some are emotional, and some are truly novel.

The reasons we choose to pay off our mortgage early (redux):

Paying off a fixed-rate mortgage offers a risk-free, guaranteed rate of return. When comparing this to other risk-free investments (government bonds, CDs, and the like), the mortgage debt reduction almost always offers a higher rate of return. Investment classes which have posted higher historical returns (stocks, corporate bonds, high-yield bonds, etc) carry a significantly higher degree of risk, including the risk of losing the entire investment.
Eliminating mortgage debt has an immediate, lasting effect on monthly cash flow. Sticking with a mortgage through 15 or 30 years requires a steady income during the same time period. By paying off a mortgage early, there is less dependency on sustained employment to meet this monthly obligation (the modern version of indentured servitude). Once cash flow improves, the ability to invest (and even to contribute to old-fashioned savings) gets an added boost.
Our house is not an ATM, nor is it a chip to be gambled away. A house is a place to live -- a home, a shelter, a place of refuge and strength and solidute. If someone had given us our house as a gift (mortgage-free), we would not have taken out a home equity loan and used the proceeds to invest. If we wouldn't put our home at risk in that scenario, why would we make the same decision when we're paying down a mortgage?
Nobody can know the future. Nobody can predict the future behavior of the stock market or the bond market. Very few people can predict the future of their employment situations. Investing involves risk. Debt elimination adds certainty to a very uncertain world.

Goal for 2011

2011-01-09T22:43:00.002-05:00

As I've stated many times before, my wife and I set a goal in December 2007 to pay off our mortgage in five years. Three years into the project, we're ahead of schedule. Because of this, we've decided to set an aggressive goal for 2011: kill the mortgage by the end of this year.

Even though we managed to exceed our yearly goal ($37,796.76) in each of the past three years, the outstanding balance ($58,121.17) is larger than the total principal reduction in any prior calendar year. So how will we manage to meet this lofty goal? We have a few things going for us.

1. The interest portion of our required monthly payment continues to drop with each month. This means more principal reduction without any extra effort. Running several hypothetical scenarios for 2011, I see we'll have somewhere in the neighborhood of $2,000 to $3,000 additional principal reduction from this trend, compared to interest we paid in 2010. However, smaller interest payments alone won't be enough to help us eliminate the mortgage debt in 2011, so I'm glad that...
2. We should have a smaller income tax bill due in April. Since we owed so much in each of the past two years, we made estimated tax payments for 2011 during 2010. I don't know yet how much of a difference this will make, but I'm guessing it will be at least $2,000, and possibly as much as two or three times that amount. This will help us weaken the debt, but not eliminate it, so it helps that...
3. I expect to receive some deferred compensation in the next few months. Several years ago, when the economy was better than it is now, I was awarded a bonus which required me to (a) remain with my employer for specified period, and (b) maintain a certain level of performance in order to collect. I met the eligibility as of December 31, 2010, so I'm expecting a boost in one of our mortgage payments this spring. Exactly how much this will amount to remains to be seen, so I can't yet predict the impact it will have on our overall progress. However, we have an ace in the hole, which is...
4. Even as we've worked hard to pay down the mortgage debt, we've been adding to our savings. This is cash we set aside for emergencies and property tax payments. We've had to draw on it a few times over the past three years (for example, when our furnace died, or when our water heater broke), but we've always built it back up, and at our current rate of saving (and barring any major unexpected expenses -- knock on wood), the amount of our emergency cash on hand should eclipse the outstanding mortgage balance at some point during 2011. We'll have to come to a joint decision on when the time is right for a significant reduction in our emergency savings, but I expect that this project's nail in the coffin will come in the form of a transfer from savings over to the mortgage, wiping it out in one swell foop.

Paying off the debt in 2011 is definitely a best-case scenario, since so many obstacles could prevent us from achieving this goal, but it's best to aim high, right? I'm looking forward to focusing our efforts and ending this project on a high note. It's exciting to think that by reaching this goal, we'll send our final mortgage payment sometime in the next twelve months!

2010 in Review

2010-12-28T14:43:00.003-05:00

2010 is growing old. Time to wrap up Year Three of the Death to the Mortgage project.

When we set our goal in December 2007 to pay off our mortgage in five years, we also implicitly set a goal to pay off at least one-fifth of the starting principal balance in each calendar year. On Dec 31, 2007, our mortgage stood at $188,983.82, which means we hoped to reduce the principal amount by at least $37,796.76 each year.

In 2010, we obliterated that number by chopping $49,937.23 off of the debt, which was more than 132% of the yearly goal. We've been able to exceed our goal in each of the first three years (see also 2008 and 2009), but 2010 has been our most successful year to date, by far.

As the principal amount dwindled, the interest we paid each month followed suit. The amount of interest in the December 2010 payment was slightly more than half the amount we paid in December 2009. Our mortgage is now caught in a debt snowball of sorts: as the interest shrinks, the amount allocated to principal reduction keeps growing.

Or course, shrinking interest payments weren't the only reason we exceeded our goal for 2010. We also benefited from other events.

My wife brought in extra income over the summer months doing contract work at a second job.
Based on her contracting experience, my wife applied for (and was hired to) a new full-time position with the company she had been working for over the past few summers. The new job came with a higher salary, which increased the amount we could allocate to mortgage prepayments in the last three months of the year.
There were no changes to my job status in 2010.
I received a modest inheritance from the sale of my grandfather's house.

Three years into this project, it mostly runs on autopilot now. I budget at least 6 months in advance, so I always have an idea of how close we are tracking to the plan. My wife and I discuss purchases in advance (no matter how insignificant), so our spending doesn't jeopardize our mortgage prepayments. What was once a change to our financial routine has now become the norm.

I feel like we have a lot of momentum going into 2011. Since we're ahead of schedule for the project as a whole, we have a buffer to insulate against unexpected major expenses or disruptions to either of our incomes. This makes us more determined to pay down the remaining debt as fast as possible, so we can wipe the obligation from our future expenses, and appreciate an added certainty in our lives.

Happy new year!

Monthly Summary: December 2010

2010-12-27T15:21:00.002-05:00

I'm sitting inside, looking out at the tall evergreen trees swaying in the strong winds of a blizzard, feeling thankful that the power has remained on throughout this storm. We had plans to visit my family this week, but the weather has postponed our travel for now.

December was mostly a good month for us financially. Although we did have a high veterinary bill due to our dog's surgery, we were otherwise able to keep expenses at reasonable levels, even with the usual holiday gift, food, and travel costs included. On the income side of the ledger, December was one of the two months in 2010 when my wife received three biweekly paychecks (instead of the usual two). Since I only budget for two paychecks per month, this provides an extra boost to use for debt reduction. On top of that, my employer unexpectedly announced an extra year-end bonus for all employees. By shedding some employees over the past few years, the company has been able to keep margins high. This is the silver lining of layoffs from an employee's point of view -- although job cuts are stressful and disruptive, those of us fortunate to remain on the payroll are able to benefit from the improved cash flow. (This once again reinforces our motivation to pay off the mortgage as quickly as possible. We don't want the monthly debt obligation hanging over our heads if one of us loses a job on short notice.)

We sent the 22nd of 120 scheduled payments on our ten-year mortgage in December, which was the 36th payment since we began this project three years ago. That's right, three years of mortgage-killing are now in the history books.

The balance was $63,917.61 at the start of December. We were able to add $4,500 to our regular payment (thanks to the extra paycheck and the bonus). The total principal reduction brought the balance to $58,121.17.

We realized $242.16 in interest savings in December, bringing the total realized interest savings to $3,635.99 since January 2008.

The balance of our ten-year mortgage is $67,598 less than it would be if we'd never made any extra principal payments. We'll pay off the loan four years and nine months early if we stop sending prepayments at this point.

There are two years left in our five-year goal period. We have to average $2,421,72 of principal reduction each month to eliminate the mortgage by the end of 2012.

I'll write a separate entry for our 2010 progress, but I'm quite pleased that we were able to end the year on a high note by dropping the mortgage balance below the $60K mark in December.

Monthly Summary: November 2010

2010-11-30T17:25:00.004-05:00

The year 2010 keeps chugging along. It seems like I just made an entry a few days ago, but a whole month has passed.

November was a solid month for us. I've updated our budget to include the pay from my wife's new job. However, I'm still not quite certain what extra amount we'll be able to allocate to the mortgage over the next few months for a few reasons:

My employer may offer a year-end bonus, though the size is unknown at this point.
We've been sending estimated tax payments to the IRS for 2011, so our tax bill may be much smaller than it has been over the past several years.
After unsuccessfully trying to rehab our dog for a year, we finally bit the bullet and made the decision to pay for an expensive veterinary surgery which will hopefully restore her to full health (a leg/joint injury had made it difficult for her to be fully active). This expense will require us to either (a) reduce the amount we include in future mortgage payments, or (b) pull some cash out of savings.

If things go well, we could manage to make pretty substantial dents in the mortgage this winter. But for now I'm leaving more conservative numbers in our budget.

We made the 21st of 120 scheduled payments on our ten-year mortgage in November, which was the 35th payment since we began this project at the start of 2008.

Our balance was $69,474.69 at the beginning of the month. We added $2,500 to our required payment; the aggregate amount reduced the balance to $63,917.61 at month's end.

We realized $231.72 in interest savings in November, bringing our total (realized) interest savings to date to $3,393.73.

The ten-year mortgage balance is now about $62,856 lower than it would be had we never made any additional payments. We'd pay off the debt four years and three months early if we stopped making prepayments from this point forward.

Two years and one month remain in our original five-year goal period. We must average $2,556.70 each month to kill the mortgage by December 2012.

Winter feels like it is upon us already. There was snow on the ground for Thanksgiving here in New Hampshire. I need to put the studded tires on the bicycle soon so I don't slip on any icy patches while riding to work.

Monthly Summary: October 2010

2010-10-31T22:52:00.002-04:00

Happy Halloween! October has treated us well. We've been spending time with family and enjoying the beautiful autumn colors here in New Hampshire.

My wife is settling into her new job. Rather than going to work in the same location every morning (as she did in her prior role), she must travel on a regular basis in this job. Fortunately, she is able to work from home on her non-travel days. Although her day-to-day duties are more variable, her income is going to be much more consistent than it was when she was doing contract work for this organization. Once she gets her first full paycheck (net of all deductions and withholding), I plan to update our budget to get a more accurate projection of our ability to attack the mortgage in the future.

We made the 20th of 120 scheduled payments on the ten-year mortgage in October. This was our 34th payment since beginning the DTM project in January 2008.

When October began, our balance was $69,474.69. Because we made such an aggressive payment in September, we were able to add only a modest amount ($500) to the principal when we sent in the mortgage check this month. When combined with our required payment, this reduced the balance to $67,699.47 at the end of October.

We realized $228.92 in interest savings this month, bringing our total realized interest savings to date to $3,162.01.

Our balance is now about $60,124 lower than it would have been if we'd never made any prepayments on the ten-year mortgage. We're still on track to pay off the debt four years and three months early even if we stopped making extra principal contributions going forward.

There are 26 months left in our original 60-month goal period. We have to average $2,603.82 in principal reduction each month to reach this five-year goal.

Looking forward to November, I'm optimistic we can make a more substantial dent in the balance next month. Even though we have already shattered our 2010 goal, I'm looking forward to finishing the year strong.

Monthly Summary: September 2010

2010-09-30T22:58:00.004-04:00

September was an exciting month for my wife and me, especially within the context of paying down our mortgage.

First, my wife accepted a new job offer. She has been doing contract work over the past three summers with an organization whose mission she very much believes in. An opportunity to move from contract to full-time presented itself in September, and she jumped at the chance. It's great that she will be working in a role which she will find more challenging and fulfilling. As an added bonus, her new salary will slightly exceed her total earnings from each of the past several years (which includes her former salary plus the extra compensation she made by contracting with her new employer). This means potentially more money for us to use to pay down the mortgage and save for our future. It also means my wife can focus on a single set of professional responsibilities instead of juggling two jobs during the summer months.

Second, we received a large portion of my wife's contract pay in late August and September, which allowed us to make a significant extra payment toward the mortgage in September. After tallying up our progress, I see that we have now exceeded the goal we set for ourselves in 2010 after just nine months.

We made the 19th of 120 scheduled monthly payments on our ten-year mortgage in September, which was also the 33rd payment since we began the DTM project in January 2008.

The balance was $77,717.74 at the beginning of September. We made our highest-ever extra contribution to principal, adding $7,000 to our regular payment, which reduced the debt to $69,474.49 at month's end.

We realized $201.16 in interest savings in September for a total of $2,993.09 in realized savings since the beginning of the project.

The ten-year mortgage balance is $59,395 lower than it would have been if we had never made any extra principal payments. If we ceased prepayments at this point, we would still retire the debt four years and three months early.

Twenty-seven months are left in the five-year (sixty-month) goal period. We must average $2,573.13 in principal payments to reach the goal within the five-year window.

I expect we will make more modest progress throughout the rest of the fall season, but it feels good to already find ourselves ahead of our 2010 twelve-month goal after only nine months. Once my wife's new pay starts coming in, I'll have to re-run our future numbers so I can get a better handle on how much progress we'll be able to make by the end of this year and in 2011.

Monthly Summary: August 2010

2010-08-31T22:55:00.003-04:00

At the risk of sounding like a broken record, I have to again recognize my wife's contributions to our finances this summer. She has been working almost nonstop for the past 9 weeks and has brought in a substantial amount of extra income as a result. Although it sometimes feels odd to be making additional payments on our mortgage debt when there are so many news stories about people who are losing homes to foreclosure, I counter that with the knowledge that my wife is earning every penny through a lot of stress and sweat and hard work. It is very much appreciated.

We made the 18th of 120 scheduled payments on the ten-year mortgage in August. This was our 32nd payment since the project began in 2008.

At the start of the month, our balance stood at $81,944.70. We added $3,000 to the regular payment which reduced the debt to $77,717.74 by the end of August.

We realized $188.87 interest savings this month. We've saved $2,731.93 in interest since kicking off the project.

The balance on the ten-year mortgage is now $52,194 lower than it would have been if we had not made any additional principal payments. If we stopped making extra payments at this point, we would still pay off the loan three years and nine months early.

Twenty-eight months remain in our five-year goal period. We have to average $2,775.63 in total principal payments to achieve this goal on schedule.

I'm pleased with our progress this month. I'm also looking forward to continuing the attack on the mortgage debt in September. We should hopefully have more good news to share in the coming weeks.

Personal Finance Articles

2010-08-12T18:59:00.006-04:00

Two articles intrigued me over the past several weeks.

The first is about choosing a modest lifestyle in exchange for more freedom from professional obligations and the associated stress, baggage, and politics that accompany a full-time job.

http://finance.yahoo.com/family-home/article/110275/but-will-it-make-you-happy

This article puts into words exactly what my wife and I are striving toward: the ability to reduce or eliminate our monthly obligations so that we can step back from full-time employment, and enjoy our (simple) lives together. We'll be making memories together instead of accumulating possessions (and the maintenance, upkeep, and other responsibilities that accompany them).

The second article discusses (among other things) viewing mortgage debt reduction as a type of fixed-rate investment.

http://finance.yahoo.com/loans/article/110161/doubling-down-on-housing

My favorite part:

In the past, financial planners typically recommended that homeowners devote as little cash to real estate as possible, and to invest it in the financial markets instead. But with stocks essentially where they were 11 years ago and market volatility seemingly on the rise, people are rethinking that wisdom. Devoting extra cash to repay a mortgage early is among the safest ways to produce an investment return.

I never agreed with the advice which said that it was wiser to invest in stocks than to pay down a mortgage. This relies on an assumption that past returns in stocks over the long term (meaning the span of a human life, or longer) will continue into the foreseeable future. This to me is a risky assumption to make.

If by some series of fortunate events, you were able to invest in safe, guaranteed debt instruments (think government debt with a fixed coupon) which pay a higher rate than the rate on a fixed mortgage, then I do think it would make sense to invest in those securities instead of paying down a mortgage. But I can't think of a realistic example of how any homeowners would find themselves in that scenario. For now, the only non-retirement money we have set aside is held in cash -- all of the rest goes toward the mortgage debt.

Monthly Summary: July 2010

2010-07-31T23:30:00.002-04:00

This summer has been a busy time for my wife. As I mentioned in last month's progress report, she is once again away on a business trip. She's picked up a lot of extra work this summer, earning some much-appreciated additional income which we will be dropping on the mortgage over the next couple of months. I'm excited about the potential progress we can make during the remainder of this calendar year.

Something unexpected happened in July. My grandparents' house finally sold after being on the market for over a year following my grandfather's death. My dad told me that it had been Granddad's wish to leave something behind for his children and grandchildren, so my wife and I became the grateful recipients of some money. My parents advised us to "spend it mindfully". Since both of my grandparents were frugal, and Granddad in particular had an aversion to mortgage debt, my wife and I couldn't think of a better use for the money than to give our own journey to mortgage freedom an extra boost.

Granddad and Granny, I appreciate this final gift, on top a lifetime which was already full of kindness and generosity from both of you. Granny, I'm sorry you never got a chance to meet my wonderful wife; I think the two of you would have gotten along very well.

***

The July mortgage payment was the 17th of 120 scheduled payments on our ten-year mortgage, and the 31st since we began this project at the start of 2008.

The balance was $89,641.99 at the beginning of the month. By adding my grandparents' gift to some of our own funds, we were able to make an extra payment of $6,500, which when combined with our required payment amount reduced the balance to $81,944.70 at month's end.

We realized $163.19 interest savings in July to bring the total actual interest saved to date to $2,543.06.

Our ten-year mortgage is now $49,005 lower than it would be had we never made any extra principal payments. If we stopped making extra payments now, our work so far would allow us to pay off the mortgage three years and seven months early.

We have twenty-nine months left in the sixty-month goal period. To reach our goal, we have to average $2,825.65 in principal payments per month. We're getting excited about our ability to reduce this number even further in the near future. This project is gaining momentum in the second half.

Monthly Summary: June 2010 (Halfway Complete)

2010-06-30T22:25:00.002-04:00

The year 2010 is almost halfway over -- July 2 marks the halfway point -- and summer is in full bloom. I love this time of year.

According to the calendar, June 2010 also marks the halfway point of our five-year goal period. Thirty months are in the books, and thirty months are left to go. Fortunately for us, we've made sufficient progress in the first thirty months that our mortgage balance is now less than half its amount at the end of 2007 (when we dreamed up the project). In fact, the debt is over 52 percent lower, which means we are slightly ahead of schedule overall -- especially when considering that we had to pay proportionally larger interest amounts at the beginning of the project (and our current interest rate is lower than it was in 2008).

Another way to summarize our progress to date is that our mortgage is (at least) halfway dead.

My wife is not here to celebrate this milestone with me today. She's started her summer contract work and is away on a business trip. Because we'll have her extra income during the next few months, we were able to make a large prepayment of $5,000 in June. I like seeing the big reduction in the mortgage balance this month, but because of our relatively lower principal payments earlier in 2010 (March through May), we are still slightly behind my goal pace for this year. Hopefully we can make up the difference in the second half.

We made the 16th of 120 scheduled payments on our ten-year mortgage in June, and (as I mentioned earlier) the 30th payment since beginning the DTM project two and a half years ago.

At the start of June, our balance stood at $95,185.47; by adding the $5,000 additional principal amount to our required monthly payment, we reduced the balance to $89,641.99.

We realized $143.47 interest savings in June, bringing the total realized interest savings to date to $2,379.87.

The ten-year mortgage debt is $42,342 lower than it would have been if we never made any extra payments to principal. If we quit paying additional amounts after this month, we would still pay off the mortgage three years and two months ahead of schedule.

There are thirty months remaining in our sixty-month (five-year) goal period. We must pay an average of $2,988.07 each month to eliminate the debt within this time frame. Fortunately, the principal portion of our required payment amount is around $1,200 (and steadily rising), so we "only" have to come up with around $1,800 additional each month these days -- over $500 less per month than when we began the project. However...if we can continue to find that $500 and add it to our payments, we could potentially (dare I say it?) reach our goal even ahead of the five-year deadline. It's nice to imagine that happening...we just have to keep working toward making that a reality!

Summer Update

2010-06-23T17:21:00.002-04:00

Happy Summer. I didn't get laid off from work this month, though I know some people who did.

If we pay off our mortgage according to plan, we will save ourselves around $8,500 more in interest than if we just started paying off the required monthly amount going forward. More motivation for us...

More to follow at month's end when I reconcile our standing at the halfway point of this project.

Monthly Summary: May 2010

2010-05-31T23:11:00.002-04:00

What a great Memorial Day weekend. Why can't every weekend be three days long?

I managed to ride my bicycle every work day in May (20 for 20), repeating my April accomplishment. Unfortunately I already know that the streak will end next week, as I have to work in Boston one day, which means I have to take the bus. Oh well. At least now I can take some vacation days and not feel guilty about them.

We made the 15th of 120 scheduled payments on our ten-year mortgage in May. This was the 29th payment since starting our DTM project in January 2008.

The outstanding balance was $97,890.63 at the beginning of May. We made a $1,000 prepayment to go along with our regular payment, which reduced our loan amount to $95,815.47.

We realized $138.98 interest savings in May, bringing the total realized savings to date to $2,236.50.

Our balance is $37,199 lower than it would be if we never made extra principal payments on the ten-year loan. We would still pay off the mortgage 2 years 9 months early if we had to abandon the project at this point.

Thirty-one months remain in our five-year goal period. We must average $3,090.82 principal payments per month to meet the goal. My wife's employment status is once again certain (she found out that her position is no longer on the chopping block), but there are rumors of layoffs happening at my office next week. Hopefully my name is not on the list.

Finally, a quotation from Will Rogers, which was sent to me a while ago by my dad:

"Too many people spend money they haven't earned to buy things they don't want to impress people they don't like."

Although Rogers died decades ago, his words still ring true today. Don't you agree?

Monthly Summary: April 2010

2010-05-01T11:08:00.002-04:00

April is gone, and I have no blog entries to show for it. I get Spring Fever around this time of year, and I don't seem to have as much tolerance for sitting in front of the computer. That is not to say that April wasn't an eventful month for us.

First, we sent a huge chunk of money to the US Treasury for tax payments. The bulk of it was settling up our 2009 taxes. Because we've had large tax bills each of the past two years, we'll be sending estimated payments in advance for 2010, in the hopes that we won't have to take such a big hit next spring. Our first 2010 estimated payment went through in April. Our total tax payments this month dwarfed the amount of money we spent on the mortgage (which is usually our largest spending category).

Second, my wife learned that her position at work is going to be phased out over the next few months. Fortunately, her manager seems to value her abilities, and has asked her about moving into a new opportunity that just opened up. Talks with HR are pending, but it appears that my wife might even be able to increase her salary if the new position works out. We're keeping our fingers crossed, hoping for good news here. (By the way, no news is good news as far as my job is concerned).

Third, for the first time ever, I managed to ride my bicycle to the office on every single work day in a month. There were 21 work days in April, and I was on the bicycle for all 21 of them. It helped that the snow and ice are behind us, but I did ride through my fair share of rainy days. Strangely, even though I feel like I'm in great physical shape, I find that I've been steadily gaining weight over the past few years. I can't tell where it's accumulating on my body, however. My wife thinks it's all going to my legs.

Because we had to set aside cash for the tax payments, we had only a token amount available for extra payment on the mortgage in April. We made the 14th of 120 scheduled payments on the ten-year mortgage, and the 28th overall since we began the DTM project in January 2008.

At the start of April, our outstanding balance was $99,639.41. We added $500 to our required monthly payment, which reduced the balance to $97,980.63.

We had realized interest savings of $136.52 in April, bringing the total savings to date to $2,097.51.

Our mortgage balance is $36,060 lower than it would have been without making any past principal prepayments. We would pay off the loan 2 years and 9 months early if we stopped making extra payments going forward.

There are 32 months left in our five-year goal period. We have to average $3,061.89 in principal payments per month to meet our goal. Since the big tax bill is in the books, we should have an opportunity to get ourselves back on track for meeting our 2010 goal. It would be much easier for us to plan for upcoming payments if my wife is able to get confirmation of her new position at work. We're hoping this process doesn't drag out any longer than it has to.

Monthly Summary: March 2010

2010-03-31T20:40:00.002-04:00

Every year I have the same thought when the end of March rolls around. Although the year still seems new, a quarter of it is already in the history books. This has been an unusually warm and rainy March for New England...no snow to speak of, but ample rain over the last two and a half weeks. Luckily, we've been spared the flooding that is affecting other communities in the region.

We made the thirteenth of 120 scheduled payments on our ten-year mortgage in March, and the 27th overall since we set our five-year goal in January 2008.

At the start of the month, our balance was $101,291.80. Because of recent expenses (home repairs and taxes), we added only $500 to our regular mortgage payment. Still, this was enough for us to reduce the principal below $100K, as the end-of-month balance now stands at $99,639.41.

We realized $134.08 interest savings in March, bringing our total savings to $1,960.99 since the beginning of the project.

The loan balance is $35,423 lower than it would be had we never made any prior prepayments. We would still pay off the loan two years and eight months early if we stopped making extra principal payments.

Thirty-three months remain in our five-year goal period. We have to average $3,019.38 in total principal payments each month to meet our goal.

Although it feels great to break below the $100,000 mark, we still have a long way to go before we are completely mortgage-free. We are going to be conservative with our prepayments for the next few months because of the expensive start to 2010, which should allow us to rebuild our savings. There is also a little bit of uncertainty in both of our jobs right now (rumors of job cuts this spring). We have no specific reason for concern over either of our positions, but it's hard to predict the whims of employers. We are fortunate to still have two steady income streams when so many are without a reliable paycheck.

Winter Cycling

2010-03-28T10:29:00.003-04:00

Now that spring has officially arrived, I've had a chance to reflect on my success in cycling through the winter. In 2009 I resumed commuting to work by bicycle during the last full week of March, and now that the same calendar week has passed in 2010, I can truthfully claim to have been a year-round New Hampshire cyclist.

I started riding my bicycle to work in the spring of 2007, and continued through 2008 and 2009. In previous years I always stopped cycling by the time Daylight Saving Time ended (late October or early November). I didn't have the confidence to ride in the dark, nor in cold weather. Since my wife and I share one car, we had to carpool during the October-March stretch. This was less enjoyable for both of us: my wife had to stay at work longer than she might have liked, and I had to spend more time driving in afternoon traffic to pick her up. I looked forward to the start of spring riding so we could both regain our transportation independence.

Some time during the past year I met another guy who works at my office who regularly rides his bicycle into work, winter months included. He also introduced me to another gentleman who rides to work year-round in Boston. Both of these men are in their 50s, unassuming, and not what anyone would call muscular (in fact, one of them is pretty scrawny-looking). I figured if they could ride safely during the winter, so could I (since I am of course young, incredibly fit, and nigh-invulnerable). So I solicited their recommendations on clothing, equipment, and riding techniques.

I will say that riding a bicycle during the winter requires more preparation than in the warmer months, but once I got into a routine, it didn't seem all that different from my summertime rides. In my opinion, there are four main challenges to overcome, listed more or less in order of importance:

Illumination
Sharing the road with winter traffic
Keeping warm
Keeping the bicycle maintained

I believe proper Illumination is the most important consideration when riding after DST ends. During the darkest months (November through January), it can get as dark by 4:30-5 PM as it is at midnight. I used one high-intensity LED lamp mounted to the top of my helmet as my "headlight" (with a steady white beam) which enabled me to see the road/trail ahead in total darkness. I also attached four flashing lamps on my bicycle to allow others to see me as I pedaled down the road: one flashing white LED in the front (mounted on my handlebars), one red flashing LED on the end of each handle (shining right and left so I could be seen from the sides), and one bright red flashing LED on the back of my bicycle.

I was pleased to observe that when I rode with all of my lights shining brightly, most cars seemed to give me more clearance when passing then they tend to offer when the sun is shining and I am riding without lights. Still, I found I had to adopt a few strategies during the winter while sharing the road with winter traffic in order to feel safe. First, and in my opinion most important, cars are not expecting to see a bicycle on the road in January. For this reason, I rode more slowly in the winter, double- and triple- checked before making turns or merging with traffic, and paid close attention to trouble spots (like narrow streets, hills, and spots with poor snow clearance or large snowbanks). Second, although I purchased and used studded winter tires which made me feel very confident about my ability to gain traction on snow and (especially) ice, I was not always confident that cars would be able to stop in time to avoid colliding with me in tight spots. So I made sure to yield whenever a car might have had trouble passing me, and kept off the main streets whenever possible to minimize my chances of coming into contact with heavy traffic. Even though the side streets get less attention from the snow plows, I figured I would be better off working harder to ride down snowy, empty streets than I would be fighting for space on the narrow side of a heavily-trafficked (but better-plowed) main thoroughfare. (And as a side benefit, it allowed me to avoid snow plows when on a bicycle...they are no fun to be around, whether they are in front of you dropping salt, or right behind you looking to clear the road on which you are pedaling).

Although it might seem like it would be at the top of the list in order of importance, I found that keeping warm was not as difficult as I expected. Though I'll concede that the winter of 2009-2010 was not one of the coldest I've experienced during my years in NH, I still rode on mornings when the temperatures were in the single digits F. Keeping my core warm was remarkably easy: I used a single wick-away shirt as a base layer, with a pair of thermal bib cycling tights for my torso and legs, and a lightweight barrier shell jacket (windproof/waterproof) on top. On days when the temperatures were below 30 degrees F, I used a balaclava for my head and face, so that only my eyes and nose were exposed to the elements; on "warmer" days I used a simple skull cap. Regardless of the headgear I always wore glasses (clear or tinted depending on the time of day) to cut down on the cold wind hitting the eyes. I had been given special "lobster" cycling gloves for my hands, but I found that on the coldest days, those gloves were not warm enough, and I relied on an old pair of standard ski gloves which kept my hands warm and dry. The footwear was probably the biggest challenge for me. The method which I finally adopted was to tuck a thick wool sock into my high-top Gore-Tex backpacking boots. The boots were heavy, and probably to the disappointment of the cycling purists, there was no way to attach them to the pedals, but they kept my feet warm, which was my top priority. With this set of clothing, I never found myself too cold to ride, and by the time I reached my destination I would often be on the verge of overheating, even on the coldest days.

Keeping the bicycle maintained in the winter is definitely a challenge. The roads get covered with sand and salt, which when mixed with snow and ice makes for a nice corrosive coating on the chain, gears, and brakes. On top of this, it's not really feasible to hose down the bicycle when it's 17 degrees outside and sleeting. So some sacrifices have to be made. I bought a heavy-duty lube which I would never use for summer riding (as it would attract far too much road gunk) and liberally soaked the chain and other moving parts with it. It kept things in decent working order. I took old t-shirts and wiped down the frame and other parts when they got especially wet and grimy. I also used a stiff-bristle brush (made for cleaning tile grout) to scrub off the chain and gears. On a couple of fortunate weekends (when the temperatures had risen to the high 30s during a thaw) I did take out the hose and sprayed down the bicycle, though this was more an exception than the norm. And I counted on the fact that I would need to replace the cassette and the chain after the winter ended, since the sand/salt mixture put far more wear on those parts than they are subject to during the rest of the year.

My wife also started riding her bicycle to work during the winter. She has to be more selective about the days she rides (since she does not have a place to shower at work) and therefore she stuck to the dry, clear days when she would not get soaked with precipitation or road spray. She adopted similar dressing and riding strategies as I did, though she did not opt to buy the studded snow tires this year (I think I'll encourage her to do this next winter).

Of course, there were some days when the snow was falling too fast or accumulating too quickly for me to feel safe on the bicycle, but fortunately they were not too common. For example, the month of January had 19 working days; I rode my bicycle on 14 of those. As a reward, I find myself in the best shape at the start of the spring season as I can remember for many, many years. And the sense of accomplishment is carrying over into other aspects of my life, giving me confidence to keep trying new things which had previously seemed daunting (like home repairs).

Cost vs. Value

2010-03-07T10:00:00.002-05:00

Whenever the wife and I go shopping, we make sure that the products we buy are giving us the best value. This may mean buying a higher-priced item if the cost per unit is lower (assuming the product's performance is similar).

For this reason, I've been irritated by a recent change in an essential item which has significantly reduced its value. Many brands of toilet paper are now up to a half inch more narrow than they used to be. Sheet count is also being reduced, and in some cases the cardboard support in the middle of the roll is getting larger (giving the perception of an identical roll size, only with less usable product).

I emailed one of the offenders (the makers of Quilted Northern) and received the following response.

Thank you for contacting the Georgia-Pacific Consumer Response Center. Georgia-Pacific places tremendous importance on the opinions we receive from our customers. We understand you may have some concerns about the roll width and/or sheet count of Quilted Northern Soft & Strong. As noted at the bottom of the package, Quilted Northern Soft & Strong is about 1/2 inch narrower than before, and we have slightly reduced the sheet count.

Because of today's economy, cost is a factor. We made the decision to slightly reduce the roll to bring you the bathroom tissue you trust and not raise our price to retailers. Quilted Northern Soft & Strong continues to provide the cleanliness and comfort you have come to expect, making it a great value in today's economy. As always, Quilted Northern Soft & Strong is thick, absorbent, and gentle on your skin. The bathroom tissue features strength and durability for cleanliness, with softness and thickness for comfort. With Quilted Northern Soft & Strong, you do not have to compromise comfort for clean.

In fact, we've heard from many of our most loyal customers about how important the quality of our bathroom tissue is to them. For more than 100 years, consumers have trusted Quilted Northern Soft and Strong to deliver what they want most in a bathroom tissue: cleanliness and comfort. We would never make this change if our core consumers didn't approve of the product.

Apparently Georgia-Pacific thinks it makes sense to decrease the quality of their product as long as they can keep costs the same. I'm guessing they are also hope that a significant percent of their customers don't notice the change. Companies seem more than happy to write phrases in big bold lettering like, "NOW, 20% MORE FREE!!!" -- but when product size decreases, they pretend that nothing has changed. They prioritize cost over value.

This is certainly not the first time a company has surreptitiously reduced the size of a product in order to cover their increased costs, and it unfortunately won't be the last time. Although it's disappointing to buy a smaller box of cereal, the product inside the box doesn't conform to a standard. Toilet paper, however, is meant to hang from a roll of a specific size, and fit comfortably in the human hand. To me, reducing the width of toilet paper rolls is almost as inconvenient as it would be if paper companies started selling writing/printing paper in sheets a half inch more narrow than before -- when so many devices (printers, photocopiers, notebooks, and so on) are designed for a standard paper width.

Sadly, even though it's still possible to find a few brands which offer the older (wider) rolls, I think it's only a matter of time before the remainder follow suit. Which means that we, as consumers, will have no say in the matter, unless we want to all suddenly convert to using bidets or leaves or making our own toilet paper. I'll of course continue to look for the wider rolls as long as they last, which means I'll be avoiding the inferior Quilted Northern from now on. My wife and I still prioritize value over cost. Unfortunately, TP manufacturers seem to think we are in the minority on this issue.

This line of thinking is part of what motivates us to pay down the mortgage sooner. By increasing the monthly cost of our mortgage payments in the short term, we're increasing the value of our money in the long term, by paying less interest to the lender.

If you want to read more about the smaller (and skinnier) TP roll trend, below are links to two articles from a blog called "toiletpaperworld" (I am not making this up) with details.

Monthly Summary: February 2010

2010-02-28T09:54:00.002-05:00

February turned out to be an expensive month for us. In addition to learning that our tax bill would be even larger than anticipated, we paid a plumbing company to replace our failed water heater, and have to start thinking about repairing the water damage to our basement. I am glad we never stopped putting money away for emergencies during the Death to the Mortgage project. We'll be able to tap some of our savings to help with the taxes and repairs while staying on track for our DTM goal.

In February we made the twelfth of 120 scheduled payments on our ten-year mortgage, and the 26th overall since we started the five-year DTM project in January 2008.

When February arrived, our loan balance was $104,432.09. We included a $2,000 prepayment along with our required payment, reducing the debt to $101,291.80 by month's end.

Our prior efforts saved us $125.89 interest this month, and $1,826.91 in realized interest savings to date.

The balance is $34,789 lower than what it would be if we'd never made any extra payments on the ten-year mortgage. If we had to abandon the project after this month, we'd still pay off the note two years and eight months early.

We have 34 months left in the five-year (60-month) goal period we set for ourselves. The average total principal we must pay each month to reach this goal dropped to $2,979.17.

We reached a couple of milestones in February. First, we've now paid down over 50% of the original mortgage balance (which began at $204,000 in 2006). Being more than halfway through the debt is a good feeling.

Second, I believe we reached the break-even point on refinancing the mortgage in February 2009. It took exactly one year (twelve months) for the interest savings to offset the costs (fees, etc) involved in the refinance transaction. I calculated this by comparing the amount we actually paid on the newer ten-year loan against the amount I believe we would have paid if we'd kept the old 15-year mortgage. I reduced the hypothetical payment on the old loan by the difference in required monthly payment amounts (about $175 less now than before). Going forward, the reduced interest charges represent pure savings to our bottom line.

One odd fact to note...if we had not paid down the mortgage so aggressively over the past year, we would have reached the refinance break-even point sooner than we did -- because there would have been a higher principal balance each month to generate interest charges (and the reduced interest charges with the new mortgage would have been more substantial). Of course, by paying down the balance, we're also saving ourselves interest charges, so I'm not disappointed by this at all.

I'm looking forward to the return of daylight saving time in March...it will be nice to be able to ride my bicycle to and from work without my headlight and taillights!

Hot Water

2010-02-17T18:53:00.003-05:00

I woke up this morning and went downstairs to the basement to get some clothing from the laundry room. I noticed it was warmer than normal, and humid. After walking to the other end of the basement, I found our hot water heater had completely failed sometime during the night, pouring its contents out all over our (carpeted) basement floor.

I spent most of the day hauling stuff out of the affected area. The room where the water heater lives is also where we keep things we don't use on a regular basis: seasonal decorations, old books, mementos, extra lamps and fans, exercise equipment, and boxes and bins full of random life accumulations. My wife came home from work and together we quickly sorted items into "piles" in the garage: things to keep, things to donate or sell, things to recycle or throw away. A few items had to be trashed, because they had soaked up too much water. But fortunately, we discovered the flood before there was excessive damage, and a lot of our items (especially the decorations) were protected from the standing water because they were stored in waterproof plastic bins.

Although I'm not happy about the circumstances, I am glad for the opportunity for us to get rid of things we were holding on to for no good reason. There's nothing like a frustrating morning of hauling boxes out of the basement to make you think to yourself, "Why do we even have this?" I realized that I had lost the emotional connections to a lot of things which I had packed away earlier in life.

I was surprised to learn that our home insurance policy covers clean-up and repair of the water damage to the house, but not replacement of the water heater itself. So unfortunately, we have to dip into our emergency savings to replace it. We are going with at tankless "on demand" model with automatic shut-off (to prevent flooding). It costs more than a tank model, but it is supposed to last about twice as long, and may help us use less natural gas fuel over time.

Since we bought our house four years ago, we've had our fair share of plumbing mishaps, including upstairs toilets and shower drains leaking through the ceiling onto the main floor. I am wondering if we should proactively inspect and replace the other fixtures to ensure that we don't have to discover any more unexpected water damage. I had hoped to replace the water heater after the mortgage project was complete, but obviously that didn't happen. Seems like plumbing repairs are always more of a hassle and expense when we haven't planned for them.

Taxes and Interest

2010-02-07T08:50:00.005-05:00

I completed our 2009 tax returns this weekend. Happily, almost exclusively due to my wife's hard work, our income was almost eleven percent higher in 2009 than it was the year before. And because of our focus on killing the mortgage, we paid about 37% less in mortgage interest in 2009 than in 2008.

It would be easy for me to say something like, "Unfortunately, because our income rose and our deductions fell, we owed more in taxes in 2009 than we did in 2008." This is true, but not unfortunate. We did lose enough of the mortgage interest deduction in 2009 that it was no longer advantageous to itemize our deductions (the standard deduction was higher). But overall, we reduced our expenses. I think it's important to consider the relationship between expenses and deductions on taxable income. Here's an explanation.

Our two largest deductable expenses over the past few years have been our mortgage interest payments and our state and local property taxes. These are out-of-pocket expenses which we pay in installments, but which cumulatively reduce the amount of money we have left to spend on everything else. The other expense which significantly reduces our income is our total US Income Tax due each year. This is roughly calculated by taking our income less any deductions and multiplying by a percentage (which gets progressively higher as each tier of our income exceeds certain thresholds). It's also paid in installments, in the form of withholding from our paychecks (and a lump sum due April 15 if our withholding was not sufficient). I've tried to express the total impact of these three expenses on our finances for 2008 and 2009 in the statements below, along with a few other bits of info, in an attempt to evaluate our progress last year.

Income: 2009 > 2008 (increase of 11%)
Mortgage Interest Payments (MI): 2009 < 2008 (decrease of 37%)
Property Taxes (PT): 2009 > 2008 (slight increase)
US Income Tax (UST): 2009 > 2008 (increase of 18%)
Total Interest and Tax Expense (MI + PT + UST): 2009 < 2008 (slight decrease)

I think the first and last points above are key. Our income was higher in 2009, but our total interest and tax expense was lower. I personally don't really care whether we're paying more (or less) money to our lender or to our government from one year to the next, as long as the total amount of money we part with continues to trend down.

This is more evidence to confirm my suspicion that the mortgage interest tax deduction is not the great benefit that some claim it to be. Hypothetically, it makes sense to me that it's not advantageous to pay interest on a debt so as to save 25 (or 28 or 33) percent on taxes. And after running the numbers in a real-life scenario, I can see that my assumption holds true. Our efforts to pay off our debt reduced our total interest and taxes in 2009. Projecting this into the future, I look forward to the year in which we pay zero mortgage interest -- not because I want to pay more taxes, but because I want to reduce our total expenditures as much as possible.

Credit Card Strategery

2010-02-03T20:26:00.003-05:00

My wife and I recently received a credit card "reward" payment, which is something of a regular occurrence for us. I've been receiving them for years, but for whatever reason I had never thought to keep track of them until the most recent one appeared in our savings account.

If you've ever read any news articles about credit card companies, you may have heard that they use endearing terms like "deadbeats" or "freeloaders" to describe customers who make purchases on credit each month, but who pay off the balance in full by the due date (thus avoiding any interest charges). I hope we always fall into this category, since I'm not a fan of paying interest to anybody. We're using our credit cards as if they were charge cards, which no longer seem to be in fashion here in the US (but may still be elsewhere).

We keep three active credit card accounts. One is our primary card, which offers "rewards" of 2% on every purchase. Our backup card offers 1% back, but occasionally offers special rebates of 3-5%. We also have a Discover card, which ordinarily pays a very paltry "cash back" rate, but which features a 5% "reward" on a certain category of spending (like gasoline or groceries) which changes every few months.

Over the past year, we've received $600 in rebates from the credit cards we use. We just dump this money into our savings account, so I was able to sort through our transaction history online and find each of the credits, typically appearing in amounts of $50 or $100. Assuming a 2% rebate rate, that means we spent at least $30,000 on our credit cards over the last twelve months. And I'm happy to say that we didn't pay interest on a dime of it.

It seems like personal finance bloggers fall into one of two camps when it comes to credit cards. One group avoids them at all cost, citing the tendency to overspend and lose track of purchases. The other group (which includes the wife and me) embraces the "charge card" method of using credit cards for most purchases, which allows the convenience of cashless transactions, consolidated spending reports, and the rebates that come along with most cards held by responsible spenders.

I used to think that by using our credit cards this way, we were getting an "automatic two percent discount" on everything we buy. I've come to the realization that we're probably doing something more like paying the true cost of things. Since credit cards assess merchants a fee for each transaction, which apparently can range from two to four percent of the charge, merchants typically respond by raising their prices by the same amount, and passing along the expense to their customers (usually regardless of whether the customer uses cash, check, debit, or credit). Some frugal shoppers try to avoid this by negotiating discounts for cash transactions. We just try to use the card which will offer us the largest rebate on each purchase.

We have debit cards which we could use in a similar fashion, but in my opinion debit cards fall short of credit cards in a few areas. First, the money is withdrawn from the associated checking account immediately. This means that if there are any mistakes, the account is more likely to be overdrawn. And I'm sure our bank would be more than happy to charge us one (or more) "overdraft protection" fees if there was any sort of mix-up. Some merchants (like gas stations and restaurants) will reserve more than the purchase price as a "temporary authorization" which could also lock up our checking account if we paid with the debit card more often. For example, my wife bought gasoline from a station which charged a $250 preauthorization last week (the actual amount of gas she purchased was about $20). Since we used a credit card, it didn't cause us any issues -- as we never come close to reaching our credit limit, this was not a problem.

Other reasons I prefer using credit cards over debit cards, in no particular order:

Our checking account history shows only one payment to each credit card every month, along with our other bill payments. This makes it easier to reconcile spending when there aren't a bunch of little expenses on the statement.
Though "reward" debit cards exist, I haven't found one which rebates as much as the typical "reward" credit card.
I can budget for an expense without having to have the cash for it right away. Since the two of us get paid in regular intervals, it makes sense to have our expenses debited at regular intervals as well. I know when credit card bills come due, and I can plan to have cash allocated to cover that bill as needed. With debit purchases, I think we might modify our behavior to purchase items at only certain times of the month. This seems like an unnecessary inconvenience to me.
We can pay for occasional business expenses (for which we eventually get reimbursed) without having to immediately allocate some of our own money to cover the debit. And, as a bonus, we get the rebate for those purchases as well.

Having said all of this, I still keep a close eye on our credit card spending, typically logging into our account four or five times a week to make sure our spending is in line with our expectations. I also make sure to read everything that the credit cards send to me so that I'm not caught by any surprise changes in terms. For example, if one of our cards ever started to charge an annual fee, or removed the grace period for purchases, I would immediately pay it off and cancel the account. I'm not about to give the credit cards any extra money in fees or interest. If the credit issuers ever decided to change terms at an industry-wide level, we'd ditch our credit cards and use another spending strategy. But until that happens, we're satisfied with being a couple of "deadbeats".

Monthly Summary: January 2010

2010-01-30T11:40:00.002-05:00

Even though the coldest days of the year are upon us, the sun sets later and later with each passing day. Today is cold but wonderfully clear. The front door is open and sunshine is streaming through the glass, making the dogs happy as they soak up the warmth.

In January we made the eleventh of 120 scheduled payments on the ten-year loan, and the 25th overall since we started the five-year DTM project.

At the start of 2010, our mortgage balance stood at $108,058.40. We added $2,500 to our regular monthly payment, which reduced the outstanding balance to $104,432.09 at the end of January.

Our prepayments saved us $115.80 interest in January, bringing the total realized interest savings to date to $1,701.02.

The balance is $32,663 lower than what it would be had we never made any prepayments on the ten-year loan. If we stopped making prepayments after this month, we'd still pay off the mortgage two and a half years early.

Thirty-five months remain in our five-year (60-month) goal period. The average monthly principal payment needed to meet our goal dropped this month to $2,983.77. Since the principal portion of our required monthly payment has risen above $1,100, this means we only need to come up with an extra $1,800 a month to stay on track. (I say "only" not because $1,800 is an insignificant sum, but because we had to add almost $2,400 extra each month when we started the project.)

Progress List, Explained

2010-01-23T16:08:00.002-05:00

Some of the items listed in the "Progress to Date" section at the top of this blog may not be as self-explanatory as I had hoped. Here are definitions of the terms.

Original Loan Amount: This was the amount we financed when purchasing our home, not the amount we paid for it (we made a down payment, and also had a HELOC to bring us up to 20% equity to avoid paying PMI). This number ($204,000) obviously never changes.

Balance at Beginning of 5-year goal (1/1/08): This was the outstanding loan balance when we decided to start aggressively paying down the mortgage. The difference between the original loan amount and this amount ($188,983.82) came mainly from the portion of our regular monthly payments which was applied to the principal. Looking back, this amount seems paltry, since we only paid down the balance by $15,000 (even though we'd made over a year and a half of payments). This number is our goal starting point. This balance was covered by our first mortgage, which had a coupon of 6.0%.

Balance at Refinance in February 2009: We decided to refinance to cut our rate from 6.0% down to 4.625%, and reduced the term to ten years. The newer mortgage had an initial balance of $148,000.00.

Outstanding Balance: This is the amount we currently owe, as of the most recent mortgage payment. It changes (hopefully by growing smaller) from one month to the next.

Latest Payment Date: This is the last month we sent a mortgage payment (including any prepayments).

Latest Additional Principal Amount: This shows any amount contributed to the principal balance above and beyond our standard mortgage payment. It is my hope that this number is always at least $500.

Amount Ahead of Schedule (since refinance): This figure may not make much sense. I start with a standard amortization schedule for our ten-year loan, which excludes any prepayments. I then compare our current Outstanding Balance against the balance from the standard amortization schedule. This number represents the difference between the balance we have now, and the balance we would have had if we'd never paid anything above and beyond our required monthly payments. It's a combination of the extra principal we've paid out of pocket, along with our realized interest savings. Since I've used our refinance amount ($148,000) as the starting point for comparison, this number doesn't capture our total progress since January 2008.

Time Ahead of Schedule (since refinance): Again, I get this by comparing our current loan to the standard amortization schedule. Since we've made prepayments, our loan will be paid off ahead of the normal ten-year completion date. This shows how far ahead of ten years the mortgage will be dead.

Interest Saved Last Month: This is yet another number which I calculate by comparing our current progress against a standard ten-year amortization schedule. This shows the difference in what we paid for interest last month compared with what we would have owed in interest if we'd not made any prior principal reduction payments.

Total Interest Saved: This is the running total of the realized interest saved for each month going back to the beginning of our 5-year goal period. This is only realized interest, as there is a larger amount of unrealized interest savings compounding in the future. When we finally pay off the mortgage, we'll realize the rest of the savings.

Months Remaining in 5-year Goal: Counts down backwards from 60. One more month is deducted after we make each payment.

Average Monthly Principal Needed to Meet Goal: This is a simple calculation of the outstanding balance divided by the months remaining. This figure is the total principal needed, not just the extra amount we must add on top of our regular payment.

Don't Get Ripped Off

2010-01-05T19:13:00.003-05:00

Nobody wants to be taken advantage of, or tricked, or ripped off, right?

And when I write "nobody" I assume this includes executives and board members of companies large and small, right?

So why do corporate policymakers insist on subjecting their own customers to the very same doublespeak, dishonest practices, and confusing terms that they themselves would want to avoid?

This article is the inspiration for today's post. It is intended for a US audience, but I assume similar tactics are used by companies throughout the capitalist world.

Our strategies:
1. Use a credit card for everyday spending, but keep tabs on it daily and consider the money spent as soon as we use the card. Pay the balance in full, on time (early) each month.

2. Don't use a debit card. Keep a healthy buffer in our checking account (several hundred dollars), and watch it like a hawk to ensure balances and transactions are in line with our expectations.

3. Read every piece of legalese that we receive in the mail from banks, credit issuers, investment companies, and so on. Read them until I understand them. Call customer service if something doesn't make sense. Modify our behavior if needed to avoid new fees, etc, and look for a new service provider if changes in terms are not in our favor.

4. Have a minimalist cell phone. Don't use features like text messaging or web browsing. Get the cheapest plan the company offers and the free phone that comes with it. Read bills carefully each month to ensure nothing odd shows up. Ignore the latest technology and take advantage of the new features when they are several years old (and therefore cheap or free). Keep bills as low as possible (currently we spend around $30-$40 per month, which is still painful for me).

5. Save up cash to buy a car. And buy cheap used cars. And ride a bicycle as much as possible (even in January).

2009 in Review

2010-01-03T21:58:00.002-05:00

Year Two is now in the books! Three years left to go.

First, the numbers. As in Year One, our goal for 2009 was to reduce the mortgage balance by one-fifth the amount of our balance at the start of the project. This nice, round number is $37,796.76 (one-fifth of $188,983.82). We managed to pay down the principal by a total of $39,985.39 in 2009, meaning we achieved over 105% of our goal for the year. Hooray!

$29,500 of the debt reduction in 2009 came from our own pockets as extra payments to principal. This averages around $2,460 per month. We actually had a wide variety of prepayment amounts during the year. Our lowest of $500 happened twice, and our highest of $6,500 also occurred twice. We went one month without making any payment at all (February, since we refinanced our mortgage during that month).
The principal portion of our "regular" monthly payments (not counting prepayments) continued to rise as the interest portion fell along with the outstanding balance. The principal portion rose from around $970 to over $1100 by year end. This number will continue to grow in Year Three and will be a more formidable part of our debt reduction as the number of months left in our goal period continues to shrink.

My wife and I were evaluating our "DTM" progress during our time spent traveling together over the recent holidays. Contrasting the first year (2008) to the second year (2009), we noted some shifts in our own attitudes. In the first year, the project was new, and we made some substantial changes to our routines to cut expenses and free up cash for extra mortgage payments. We were enthusiastic about the project, but weren't completely confident we'd be able to stick to the new routine after the first few months. It was a pleasant surprise to finish 2008 ahead of our goal.

By the time the second year was underway, our routine had changed. We'd adopted the habits associated with less spending and more debt reduction. In 2009 we knew what we were capable of; we just had to remain committed to our plan. Reaching our goal for the year was no longer a hopeful aspiration, but an expected outcome. In fact, despite our success in 2009, I think we may have been able to push ourselves even further than we did. Perhaps that's something to focus on for Year Three.

If anything looks to be different in the coming year, we believe it will be the uncertainty of our existing sources of income. Neither of us has any specific reason to fear we will lose our current jobs, but general employment has obviously continued to sour over the past couple of years. My wife has also enjoyed extra income from a second job during the past two summers; there is no guarantee how much contract work will be available for her to take on in 2010. While it would be unfortunate to fall behind on this project due to forces outside of our control (the whims of our employers), it's nice to know that our current practice of living well below our means (along with our emergency savings) would allow us flexibility if one of us did have to spend some time unemployed. I'll knock on wood and hope that nothing like that happens, but mentally it helps to be prepared for the worst when uncertainty is looming.

I'll close by repeating something I've said in the past, which is that our success in this project so far has come primarily from the great partnership my wife and I share. When one of us temporarily loses motivation, the other one helps keep the focus on the goal. When one of us gets frustrated with work, the other one reminds us why we're putting up with the aggravation. And both of us keep adding detail to our envisioned future life after we've put the mortgage debt behind us. Two years down; three to go. It's not that far off.

Monthly Summary: December 2009

2010-01-03T20:19:00.003-05:00

Happy 2010! This update is a few days late since my wife and I have been away visiting family during the holidays (and therefore I didn't have all of the detailed information I needed to make this entry).

I am going to make a separate entry summarizing our 2009 accomplishments, so this post will focus only on December.

We made our tenth of 120 scheduled payments on our ten-year loan in December, and our 24th overall since we started working on our five-year goal.

Our balance was $112,168.87 at the beginning of December. My wife is paid bi-weekly, so twice a year she gets three paychecks a month instead of the usual two. December was one of those happy three-paycheck months. This means we were able to add $3,000 to our our regular mortgage payment, which when combined with our regular payment reduced the outstanding balance to $108,058.40 to finish off 2009.

Our prior prepayments saved us $103.84 interest in December, bringing the total realized interest savings to date to $1,585.22.

Our balance is $30,047 less now than it would have been if we had never made any prepayments on our ten-year mortgage. If we ceased all prepayments from this point forward, we'd still pay off the loan two years and four months early.

There are now three years (36 months) remaining in our five-year (60-month) goal period. If we average $3,001.62 in principal payments every month, we'll meet our goal on schedule.

Here's looking forward to continued success in 2010!

Passive Solar

2009-12-17T22:06:00.003-05:00

I stayed home today because I was sick. It was a bright sunny day outside, but cold (the high was 18 F). Still, I decided to try an experiment. My wife and I have noticed that on sunny winter days, we can shut off the heater and open the front door (southern exposure), letting the sun shine in through the glass outer door. As long as it does not get cloudy, the sunshine on the front of the house -- with the door open -- is enough to maintain the interior temperature, and often is enough to warm the house several degrees. We don't usually do this when it's as cold as it was today, however, but I decided to give it a try. Even with temperatures in the mid-teens outside, the passive solar trick warmed the house by one degree over about six hours. That's six hours we didn't have to burn natural gas to keep the house warm. Plus, it made the dogs happy to soak in the sunshine for a few hours.

I wish we could use this trick more often, but since it only works in bright sunshine, it's not practical on days when we are at work for 8+ hours. The short winter daylight hours and the potential for passing clouds would thwart the experiment. If only we could teach the dogs to open the door when it's sunny and close it back up when it's not...

Our Old Devices Still Work

2009-12-06T12:39:00.002-05:00

Want to pay off your mortgage early? Reject the mindset satirized in this article from The Onion. Then use the leftover cash to pay down your mortgage principal.

Monthly Summary: November 2009

2009-11-29T22:58:00.002-05:00

Another Thanksgiving weekend is in the history books. Fortunately for our budget (and sanity), the wife and I avoided the crowds in the stores, and instead spent our time with family. We also enjoyed the autumn snowfall by hiking through the woods in the north country.

I'm still cycling to work. So far the cooler temperatures and darkness haven't stopped me. Of course, the real winter weather hasn't kicked in yet.

The November mortgage payment was the ninth of 120 scheduled payments on the ten-year mortgage, and the 23rd since we set our five-year goal back in late 2007.

Our balance was $115,267.40 at the beginning of November. As we did last month, we added $2,000 to our regular payment, which reduced the outstanding balance to $112,168.87.

Our prepayments saved us $95.77 interest in November, increasing the total interest savings to date to $1,481.38.

We are now $26,944 ahead of schedule on the ten-year mortgage, and would pay it off two years and one month early if we were forced to stop making additional principal payments at this point.

Thirty-seven months remain in our 60-month goal period. We can meet our goal by averaging total principal payments of $3,031.59 each month.

We have a very good chance of meeting our goal for the year when we make our last 2009 payment in December. This is definitely something to be thankful for, at a time when many are still struggling to make ends meet. We feel fortunate to be in the position we are in, and are glad to see our hard work paying off for us.

Monthly Summary: October 2009

2009-10-31T16:46:00.002-04:00

Happy Halloween! Happy extra hour of sleep this weekend! I'm still riding my bicycle to and from work, which means this is the longest I've commuted on the bike in any year. Last year I gave up in mid-October on account of darkness and colder weather. This year I'm using illumination and some new cold-weather cycling gear I recently acquired.

Our October mortgage payment was the eighth of 120 scheduled payments on the ten-year loan, and the 22nd since we started working on our five-year D2M plan.

We began the month of October with a balance of $118,354.03. We added $2,000 as a principal prepayment, which combined with our regular monthly payment to lower the outstanding balance to $115,267.40.

We saved $87.72 interest in October, which brings our total interest savings to $1,385.61 since the beginning of this project.

We're $24,848 ahead of schedule on the ten-year loan, and would pay it off one month shy of two years early if we abandoned all extra payments right now.

There are now 38 months left in our 60-month goal period. We must average a monthly principal payment of $3,033.35 to meet our goal.

Only two short months left in 2009. Hopefully we can limit spending during the holidays so that we can meet our yearly goal.

Monthly Summary: September 2009

2009-09-30T20:48:00.002-04:00

The days are cooler, the nights arrive sooner, and the leaves are changing color here in New England. Only three months left in 2009.

September was a good month for wounding the mortgage. My wife's final paychecks for her summer contract work arrived this month. Because of her generosity (thanks, baby!) we put almost all of the extra income towards reducing the debt.

Our payment this month was the seventh of 120 scheduled on the ten-year mortgage, and the 21st overall since we set our five-year goal.

At the beginning of September the balance was $125,911.54. We made a substantial $6,500 extra principal payment, which when added to our regular payment lowered the remaining balance to $118,354.03 at month's end.

Because of our prepayments to date, we saved $62.43 in interest in September. Our total interest saved since the beginning of the project is now $1,297.89.

We are $22,760 ahead of schedule on the mortgage, and would pay off the note one year and nine months early if we stopped making extra payments after September.

We have 39 months remaining in our 60-month goal period. We need to average principal payments of $3,034.72 per month to achieve the goal on schedule. This is a nice decrease from last month.

Since we are nearing the end of 2009, it's nice to note that we are slightly ahead of pace to meet the goal we set for ourselves this year. With three-fourths of the year complete, we have paid down 78.55% of the $37,796.76 goal, meaning we must pay off a total of $8,100 over the next three months to achieve the 2009 goal (about $2,700 per month). This is definitely within our reach, based on our progress to date.

Bicycle Thoughts

2009-09-22T10:21:00.004-04:00

During the non-icy months of the past two years (2007 and 2008), I rode my bicycle into work, as I did this year. I'd go for a few weeks, sometimes a month tops, before getting a flat tire. I ride on a few busy roads on my way into the office, and it seems like I would always pick up some odd debris that had fallen into the road and been swept into the shoulder (bicycle lane) by the motion of traffic. It would be a metal building staple, or a bit of wood, or a nail. I accepted the flat tires as part of the cost of commuting by bicycle, and got good at changing flats myself. However, early this year (spring 2009) it seemed like the flats were coming fast and furious. On a few occasions I'd only make it a few days in between flats. This felt excessive to me. So I asked around, and learned from other cyclists that I was getting flats much more often than I should be.

The solution I decided upon (based on composite recommendations) was to buy thicker, more durable tires, and beefy "thorn resistant" tubes. Since I made the upgrade, I haven't gotten a single flat. I've had four months of very regular riding, both on the road and off, and so far the remedy seems like a cure. Although my bicycle is heavier than it used to be, and my tires don't get quite as much traction when off-road (especially in sand), I'm glad that I'm not spending money on new tubes every other week. The tubes I used to buy cost around $4 to replace. The thorn-resistant tubes were about $10 each, but I've more than made up the difference in price by never needing to replace them. And as a bonus, I'm not constantly adding more trash to the world in the form of flat tubes.

Now I'm inspired to try riding later in the season than I have before. Last year I stopped riding in late October. In order to ride longer, I have to overcome both the darkness and the cold. Unfortunately I can't envision a solution for either issue without spending more money on lights, clothing, and (probably) studded snow tires. I'm having a tough time deciding whether the extra expense is worth it. My initial motivation for riding the bicycle was to save money, not spend more of it.

I really enjoy the ride to and from work, for a number of reasons. The exercise is great. The reduced vehicle emissions are a bonus. But my favorite part is that I don't get stuck in rush hour traffic. Even though traffic here in NH is not terrible, I have no patience for it. On the bicycle, I can ride the back roads, take shortcuts on trails, and sneak by stopped vehicles in the bicycle lane. I'm wondering if I would get the same satisfaction during the winter. Trails will be impassable due to snow, and I'm sure the cold weather will make the ride a bit more painful on the lungs. I also think I'd feel compelled to ride much more slowly around traffic than I do in the nice weather. Still, I know of two others who ride to work during the winter, so I know it's possible. I just have to decide if I have that much motivation.

Monthly Summary: August 2009 (One Third Complete)

2009-08-30T17:26:00.003-04:00

It's hard for me to believe that August is almost over. In many ways 2009 still seems fresh and new. My wife and I just returned from a week-long trip to Yellowstone National Park. Originally we had planned on a vacation closer to home, hiking along the Cohos Trail here in New Hampshire for a week. However, earlier this summer we received an invitation to go to Yellowstone with another couple who had already made arrangements to stay there, so by splitting the cost of lodging, groceries, car rental, etc, we were able to have a bit more adventure without increasing our vacation budget too much. We'll save the Cohos trail hike for another year.

Meanwhile, my wife recently finished her summer contract work and was very pleased with it. There is a good chance she may eventually be able to build on this this experience and gain full-time employment with the organization, which would interest her very much; however, a transition to that line of work would probably not happen for another few years. The good news for us is that she added to our income, which means extra money for mortgage prepayments; the (mildly) bad news is that due to the pay schedule, we won't have the money available until it's time to make September's mortgage payment.

We made the sixth of 120 scheduled payments on our ten-year mortgage in August, which represented the 20th payment since we set our five-year payoff goal in December 2008.

At the start of August our balance was $127,463.07. We added a modest $500 to the principal when sending in our regular monthly payment, which dropped the outstanding loan amount to $125,911.54.

We saved $60.27 interest this month. Total interest saved on our 10-year mortgage is now $197.72, and total interest saved since beginning our project is $1,235.46. This number is starting to become substantial.

We are now $16,198 ahead of schedule on the current mortgage, and remain on track to retire the loan one year and three months early if we stop making prepayments at this point.

We have 40 months remaining in our original 60-month goal period, which means we are now one-third of the way through the project. The original balance at month zero was $188,983.82, and after this month's payment we have reduced the principal by $63,072.28, which is 33.37%, or almost exactly one third of the initial amount. In other words, our progress is right on track! Upon setting the goal, I wasn't sure how long we could continue to find extra money in the budget, but now that a significant milestone has been reached, I am confident that (barring major, unexpected lifestyle changes) we can continue to make steady progress toward ultimately "killing" the mortgage no later than December 2012.

At the start of the goal period, we had to average monthly principal payments of $3,149.74 to finish in 60 months. We currently need to average $3,147.79. Since the principal portion of our regular payment is much larger now (around $1,050) than it was back in December 2007 (about $775), we're benefiting from the additional principal payments we made over the past 20 months. What a great feeling to know that the effort has paid off!

Keeping up with this blog (even as infrequently as I do) has been great motivation to stay focused on the goal. The dread of going into work each day is offset by the promise that one day in the near future, I will have more control over my schedule, free from this large monthly obligation and the need to drag myself into an office every day to pay for it.

Retiring with a Mortgage?

2009-08-12T19:33:00.003-04:00

If we suddenly received a windfall payment (lottery, inheritance, gift, etc) and had more than enough cash on hand to pay down our mortgage, would we do so? Absolutely, YES. Apparently some people don't feel the same way. I can't understand that logic, as I really want to be free of all debt, but perhaps there are factors I haven't considered which would make it advantageous to carry the loan even if sufficient funds are available to retire it (for example, if real estate values are rapidly declining and you are planning on moving in the near future).

Yahoo Finance today linked to a study published by Boston College which discusses this topic. I have to admit feeling somewhat vindicated after reading their conclusion: it doesn't make sense to carry a mortgage if you have sufficient assets to pay it off, unless (there is always an exception) you are interested in leveraging your property to invest in the stock market. Personally, I wouldn't want to wager my house on such a speculative investment, but I suppose there are some out there who might consider that a reasonable option.

Of course, it doesn't make sense to be "house poor" either -- that is, owning your home outright but lacking any meaningful amount of savings. I have to admit, there are times I'm tempted to raid our savings account to put a bigger dent in the mortgage balance, but I'm sure the day after I made such a decision, we'd have to come up with a bunch of cash for some unexpected expense.

Monthly Summary: July 2009

2009-08-02T02:25:00.002-04:00

My wife and I just returned from a week in to the Pacific Northwest, visiting my family. Even though we did not have to pay for lodging, it was a more expensive week than I had planned (food, entertainment, etc). However, we had a very good time, so I'm not regretting it.

Our mortgage payment in July marked the fifth of 120 payments on our 10-year mortgage, and our 19th payment overall since setting our five-year goal.

At the start of July, the outstanding balance was $130,502.88. We added $2,000 extra principal to our regular mortgage payment, which reduced the loan amount to $127,463.07 at month's end. I'm glad to see we've reduced the balance down another notch, into the $120K range.

We saved $52.36 interest in July, which brings our total interest saved over the (short) life of the 10-year mortgage to $137.45. We're $15,637 ahead of schedule on the loan. If we stopped making extra payments now, we'd still retire the mortgage one year and three months early, due to our progress since refinancing in February.

There are now 41 months left in the original 60-month (five year) goal period. Our average monthly payment needed to reach that goal rose slightly to $3,108.86.

We reached another psychological milestone recently. Based on two very similar numbers (either our original purchase price, or the current estimated market value of our house), we now have more than 50% equity in our home. In other words, we owe less than we own!

A Debt-Free Lifestyle

2009-07-24T19:11:00.005-04:00

Earlier this year I wrote about a friend who recently paid off his own mortgage. I saw him last week and asked him how he is enjoying his new debt-free lifestyle. Although he's only been without a mortgage payment for three months, he's already taken advantage of the situation. The amounts that would have been allocated to his old mortgage during June and July were instead used to pay for a new on-demand hot water heating system, which supplies water for his personal use as well as to the radiant heating system in his house (replacing his old boiler). This should gain him some energy efficiency and bring down his utility expense in the winter.

During the month of August, he is taking three weeks off, unpaid, to travel and visit family. His company allows its employees to voluntarily take unpaid time during their slow summer season (between Memorial Day and Labor Day). Most of them take a day or two here and there. He said there was a bit of jealousy when some of his co-workers found out that he was taking three full weeks. I have to admit, I'm a little jealous myself. But to that, I say: Pay off the debt, and enjoy the rewards of your hard work! We will be there someday too.

Monthly Summary: June 2009

2009-07-02T00:16:00.002-04:00

Our new refrigerator was delivered today. I hope it keeps our food nice and cold for many trouble-free years to come.

The June mortgage payment was the fourth of 120 scheduled payments on the 10-year mortgage, and the 18th payment overall since the beginning of our five-year goal period.

Our loan balance from last month was $136,519.50. My wife is earning extra income this summer, so fortunately we were able to add $5,000 to our regular mortgage payment in June. This reduced the outstanding balance to $130,502.88.

We saved $32.96 interest in June, bringing the total interest savings over the four months of the new mortgage to $85.09. We're now $13,585 ahead of schedule on the balance, which means that we'd pay off the debt 13 months early even if we suddenly stopped making extra payments.

We have 42 months left in our five-year goal period. To achieve success, we'll need to average a total principal payment of $3,107.21 each month. This is lower than last month, and also lower than the average when we began this adventure in January 2008, which means we are once again ahead of schedule overall. However, expenses keep piling up this summer, so we can't afford to lose focus. We need to limit our spending for a while.

2009 is already halfway over! Time is flying. Enjoy the summer while it lasts!

Summer Happenings

2009-06-28T11:36:00.003-04:00

Happy Summer! June has been very rainy in New England. So far I haven't regretted our decision not to install air conditioning in the house, as we really haven't had any days where it was necessary. Today it is cloudy and 65 degrees F with showers in the forecast.

Since we moved into our house three years ago, we've steadily replaced the appliances and fixtures one by one as they've broken or worn out. This includes the windows, the furnace, all of the toilets, the plumbing and drain in the shower, the exterior doors, the overhead garage door, the dishwasher, and now the refrigerator. (Our oven/stove is on notice; it is having issues. At least the microwave oven and the hot water heater seem to be working fine.) We've had service people attempt to fix the refrigerator four times now, and desipte replacing the temperature sensors and the main circuit board (the refrigerator "brain"), as well as defrosting the entire system several times, the refrigerator is still not working properly. First, it runs for much longer than it should, to the point where the heat exchanger freezes up, which makes items inside the fridge start to freeze. Then, after it's frozen, it does not cool well at all, so anything not in immediate proximity to the cooling elements is not kept at an adequately low temperature. This has been an ongoing problem since December or January. I've had to arrange to work from home on days when I've made a service appointment ("We'll be there sometime between 8 AM and 5 PM."). We learned how to take apart the refrigerator ourselves and manually defrost it using hair dryers. We even left it unplugged for a week and moved all of our food into my wife's sister's house in an attempt to thoroughly defrost it. In the end, nothing worked. I decided our attempts to fix our existing refrigerator were not worth the hassle, so we finally gave up and bought a new refrigerator this week. It's not as fancy as our old refrigerator, but I am hoping that its simplicity means fewer parts which could potentially break. The new fridge gets delivered next week. I'm looking forward to storing food without constantly worrying whether it is being kept cold enough.

In addition to the new refrigerator, we have been spending more money this year on travel than we did in 2008. I went to a bachelor party with some good friends back in March, and recently visited my grandmother before she died. We were also invited to go to Yellowstone National Park for a week in August with some friends, so we bought airfare and split the cost of car rental reservations and cabin reservations. I am really looking forward to that trip; hopefully my wife and I can find a chance to spend at least one night camping out in the backcountry.

The money spending doesn't stop there. We are putting new tires on our car, as the original tires have finally worn down to almost nothing. I also recently bought new tires and tubes for my bicycle (puncture and thorn-resistant) because I was tired of wasting money on replacing innertubes after getting at least six flat tires since March. At least I know enough to change them myself and didn't have to pay the bicycle shop to do that simple service for me.

On the income side of the equation, my wife picked up even more contract work this summer than she did last summer, which is good news for us. This means more money to help pay for the refrigerator purchase, travel expenses, transportation costs, and (hopefully) mortgage prepayments. We are barely on track to meet our goal in 2009. This is partly self-inflicted, of course. We'll need to carefully manage our spending this fall and winter to have any chance of success.

A Reminder

2009-06-24T14:37:00.003-04:00

"When are you coming to Texas?" asked Granny. I had called her hospital room several days after she'd been admitted, at the request of my mom ("She's just sitting there with nothing to do", she told me). The initial round of tests and crowds of visitors had passed, so I had her complete attention. She sounded like her usual self, without any hint of trouble in her voice.

"I don't know," I told her. "Hopefully soon." I honestly didn't know when I'd make another trip to Texas. My family and I had been planning on meeting there in the Spring, but had canceled those plans for a number of reasons including finances and work schedules.

"Well," she replied, "I wish you could come visit. You should see people when they're alive. It doesn't matter when they're dead." Granny didn't mean for this remark to sound sinister or threatening. That was just the way she spoke, in a plain, matter-of-fact sort of way. You should eat your vegetables. You should look both ways before crossing the street. You should visit people when they're alive.

I don't know if she said that because of my Grandfather's passing last year (which was sudden and not necessarily expected despite his advanced age), or because she was being realistic about her own age (92), or because she had some indication that the pain and discomfort she had been feeling recently were signs of her own imminent death. Regardless, when my mom called me several weeks later and recommended that I come visit my grandmother soon (because Mom was noticing changes in Granny's behavior), I decided to take Granny's advice and go see her while she was alive.

My workplace has a bereavement policy that allows unscheduled time off for funerals and the like, which fortunately for me includes grandparents. However, my manager cautioned me that if I used the bereavement time while Granny was still alive, I'd have to use my own vacation time to return for a funeral.

I'm so glad I went to visit when I did. Despite her serious illness, Granny was still able to talk and laugh and remember everything. She seemed very happy to see me. I got to spend several good days with her. The weather was not too hot, so one day Mom and I took Granny for a walk in her wheelchair around the nursing home where she spent her final weeks. She got to look out at the surrounding countryside, which she appreciated, since she wanted to know what the outside world looked like (as the nursing home was as new to her as it was to the rest of us). I later learned from Mom that our walk together was the only occasion during her five-week stay in the nursing home that Granny felt well enough to go outside.

Granny died three weeks after my visit. I decided not to use vacation time to go to the funeral, since I already had allocated all of my remaining time off in 2009 for visits and trips with other family members (my parents, my sister's family, and my wife). It would have been a much tougher decision to make if Granny had not reminded me that it's important to see people when they're alive. So that's what I'll do. Granny's final gift to me was the gift of freedom.

I am looking forward to the day when I no longer have an employer to hold me accountable to a certain schedule. Meanwhile, I'll keep working hard now so that in the not-too-distant future I can stop working this way.

Monthly Summary: May 2009

2009-05-31T23:39:00.003-04:00

Our May payment was the third of 120 scheduled payments on our refinanced 10-year mortgage, and the 17th payment we've made since we set our five-year goal at the end of 2007.

At the start of the month, our balance was $139,026.46. Despite another month of high expenses, we were able to apply another $1,500 to the principal, which when combined with our regular payment, reduced the loan value to $136,519.50 at the end of May.

We saved $27.08 in interest this month, for a total of $52.13 saved since refinancing our mortgage. We are $8,552 ahead of schedule on the 10-year note, meaning we'd pay off this loan eight months early if we had to stop making extra payments at this point.

There are now 43 months remaining in our 60-month goal period. To meet our goal, we have to average $3,174.87 in principal payments per month. This is another increase from previous months. Hopefully we can bring this number back down in the near term, as we should have some additional income through the summer.

We passed another psychological milestone this month. When we bought our house, we took on a $204,000 mortgage. As of May we've managed to pay down one third of the original debt. We are making progress!

Escrow Update

2009-05-12T14:23:00.002-04:00

Last May I called our lender to cancel our escrow account. We do not have to pay PMI, so the only thing the escrow was ever used for was our property tax payments (twice a year).

I predicted that we'd earn around $80 in interest per year by investing the escrow balance in a money market fund, and assuming the responsibility for making tax payments ourselves. That was before the bottom fell out of the equity and debt markets, so money market interest rates are much lower now (less than 1 percent) than they were back then (2-3%). Still, we've earned around $40 in interest over the past year on the escrow balance. True, those earnings are taxed, so our net amount was probably closer to $30, but still, that's $30 we wouldn't have otherwise. The rate that our lender was paying on the escrow account was ridiculously low, almost to the point of nonexistence. And now, with the fall in interest rates, it's probably actually zero. Since we're going to have an escrow account anyway, it might as well be in our own control. The interest is a nice bonus.

Perhaps someday in the not-too-distant future, rates will rise again, and we'll actually see that $80. From an interest-rate point of view, it's currently a good time to be borrowing, but not the best time to be saving. Still, given the choice, I'd rather be debt-free.

Monthly Summary: April 2009

2009-05-01T18:09:00.002-04:00

Happy May! Spring has definitely arrived in southern New Hampshire by now. The flowers are in bloom, and pale greenery is sprouting out everywhere. This is one of my favorite times of year.

In April we made the second of 120 scheduled payments on our (still relatively new) ten-year mortgage, and the 16th monthly payment we've made overall since setting our five-year goal.

Our mortgage debt was $140,527.63 at the beginning of April. Because we were faced with such a large tax bill last month, we had barely any money left over to make an additional prepayment. However, we are determined to make at least a token contribution each month if at all possible. We were able to send an extra $500 along with our regular monthly payment, meaning we reduced the principal balance by $1,501.17 in April. The balance dropped to $139,026.46 at month's end.

We passed two psychologically important milestones this month. First, most obviously, our outstanding balance dipped into the $130K range. Second, for the first time since we've been paying a mortgage on our house, the principal portion of our regular (required) payment exceeded $1,000. Many personal finance bloggers talk about "snowflaking" when paying off debt; that is, applying any interest savings from the prior month against the current month's balance, and repeating the following month. As time goes by, the interest savings steadily increase the monthly payment amounts, accelerating the debt reduction like snowflakes building up a snowball as it rolls downhill. It's nice to see that effect in action on our mortgage, too. As I mentioned, our regular principal payment this month was slightly over $1,000. If we hadn't made prepayments on our new 10-year loan, that amount would have been around $976; and if we still had our original mortgage and had never made prepayments, the principal amount this month would have only been $835. Small differences can make a big impact over time.

We saved $25.05 in interest in April. We are $7,025 ahead of schedule on our new mortgage, and would pay it off seven months early if we had to stop making extra payments at this point.

We have 44 months left in our five-year goal period. In order to meet that goal, we need to make an average monthly principal payment of $3,159.69 (a slight increase from last month).

April was an expensive month, and May is looking to be almost as expensive. We've had to make a number of annual payments (vet bills, doctor bills, car repairs, tax payments, and so on) this spring, so the cash available to make mortgage prepayments is going to be limited. One bit of good news is that my wife has once again picked up some contract work this summer, so we should have some extra income in the near future to (hopefully) offset our recent shortcomings.

Rebate Checks

2009-04-27T19:31:00.003-04:00

How frustrating is it to deal with rebate offers? Back in January when we replaced our furnace, I sent in an application for a $425 rebate that was offered for high-efficiency models. The rebate application instructions said that it would take 4-6 weeks for the application to be processed and paid.

After 6 weeks had passed, I had not received a check, nor received any updates from the organization offering the rebate (a coalition of Natural Gas companies in the Northeastern US). I called to inquire on its status. They said they had received my request but it was still being processed. About a week later, I received a form letter saying that my application was missing some information. I called them the next day to find out what was needed, and they told me that the contractor hadn't provided the necessary information regarding the furnace model number, installation date, etc on the work order I had sent to them. They told me to get in touch with the contractor and have them fax the missing information directly to the rebate center. I did all of this.

Two more weeks passed. I received an envelope in the mail, expecting it to be the rebate check, only to open it and find the EXACT SAME FORM LETTER I had received the first time around. I called back, asking what was going on, since I knew the contractor had provided information on my behalf. The associate at the rebate center told me that the contractor had sent the information, but it was simply on a fax coversheet, instead of an invoice.

I asked the associate to read the entire fax coversheet to me. He read for me a date, a greeting, the model number, and the installation date. I asked if there was anything else. He read the closing of the letter to me, which stated something to the effect of "If you have any questions, or need any more information, please call us at ...". I asked the associate why their processing department didn't call the contractor to work out the kinks. Apparently that is not the way they operate there. He said their standard procedure when processing applications was to send a letter in the mail if anything was incomplete. Perhaps all of their processors are mute, or unable to operate a telephone.

As someone who's worked in customer service in the past, I know that the unfortunate people who answer the phones at a typical company or organization are not the ones who make the decisions, or effect any change. So I apologized to the associate, but told him that because this was my second attempt to square this issue away, I was going to make him hold on the line while I brought a representative from the contractor into the phone conversation. I made it very clear that they were to work together, and that if anything was missing, or not formatted correctly, the agent from the rebate organization was to call the contractor directly.

Apparently, that approach was effective, because I did receive the check today (which took about 15 weeks to arrive, instead of six weeks). Following experiences like this one, I question whether my effort to resolve the problem was worth the eventual reward. Ultimately, I believe the $425 was worth it, because I can make good use of that money. However, I'm tempted to avoid all future purchases which require a rebate application to get the advertised sale price.

Inspiration

2009-04-16T22:49:00.002-04:00

My wife and I have a friend who is very particular about how he spends money. [Note: this is not one of those fake friends that some authors invent to illustrate a point. He is an actual person whose company we enjoy.] He abhors debt, and often mentions how he hates to "separate" from his money. He saves ahead of time when anticipating a large purchase (car, appliance, etc). He is also very patient, and will delay a purchase for months or even years if he feels he is not getting a good deal.

He owns a townhouse-style condominium, and for the past couple of years he's been looking to move into a house with a yard. He's made an offer or two, but no sellers were interested in closing any deals in his price range. All the while, he's been adding to his down-payment account, patiently waiting for the right house to come along.

We've told him about our progress toward our goal of being mortgage-free. He told me he's also been paying a little extra toward his principal each month since he bought his condo. Earlier this week, he stopped by my desk at work to chat. He said he'd been preparing to make another mortgage payment, and took a moment to consider the amount remaining on his loan. He also reflected on his down payment account, and realized that by combining that with some other savings he had, he could be rid of his own mortgage. So he took the plunge, and wrote a large check to his lender, and paid off his thirty-year mortgage in a little under ten years. Now he's free of that monthly obligation for as long as he chooses to remain in his current home.

He told me that he's much more excited about being debt-free than he imagined. He plans to continue to make a monthly "mortgage" payment into his savings to replenish his down payment fund. If he sticks to that, and is patient enough, he may be able to upgrade to a more expensive house and not have to take on another mortgage in the future.

What I find most inspiring about his new situation is the freedom and flexibility that he's gained. Unlike my wife and I (and most other people we know), he doesn't have to worry about dutifully paying money each month to a landlord or a lender. I think this is an envious situation, especially in the current job market. If my wife or I lost our job tomorrow, we'd have to figure out how we could cut our spending in order to keep paying the mortgage until we found new work. If our friend finds himself in the same situation, he could reasonably survive for months without running into serious trouble.

Remember Maslow's Hierarchy of Needs? At the lowest level are the basic human needs, without which we cannot survive. To paraphrase Maslow, they are food, water, health, clothing, and shelter. Although I have no concrete data to prove this, it seems to me that for the average person in a modern, first-world society, shelter is far and away the most expensive of these needs to satisfy. Water is inexpensive. Clothing can be acquired gradually, for relatively low cost, and is durable enough to last for years if properly cared for. Food expense can be kept to a minimum in times of need. And for most people, good health can be obtained by making a personal commitment to healthy habits [I have to qualify this by defining health expenses as those which are preventative, rather than costly "cures"]. Our friend has therefore cleared a major hurdle in ensuring that his basic needs are met, regardless of his employment. He is no longer a slave to The Man.

Although I'd like to be able to say I'm completely happy for our friend, and don't have any jealousy of his new situation, I do admit that our $140K mortgage balance feels like a dead weight by comparison. However, I'm going to try to use this as an inspiration to keep working toward our own goal, knowing that patience and discipline do pay off in the end. I want us to have the freedom to go to work because we choose to, not because we feel we have to. I want us to spend the prime years of our lives actually living our dreams, not just working toward them. So we continue to hope for the best, and follow the plan, and look forward to the day when we too can start making mortgage payments to ourselves.

Another Tax Bill

2009-04-14T22:53:00.003-04:00

After last year's big tax bill, I was hopeful that the actions we took in 2008 to modify our allowances (withholding more taxes each paycheck) would result in a lower tax bill this year. Unfortunately, that was not the case. We owe even more this time around. Although we did update our W-4s after filing our taxes last spring, we had several months of inadequate withholding to overcome. We also (fortunately) earned more in 2008 than in 2007, while having fewer deductions (including less mortgage interest paid).

I'm guessing we'll run into the same issue next year. The instructions for the form W-4 advises married couples with two incomes to withhold extra money on top of zero allowances. We've decided against that. We can instead save on our own, earning interest on the money we save, and expect to pay a tax bill each year instead of receiving a refund. At least it wasn't a surprise this time around.

To make matters worse, our tax withheld for 2009 will be even less this year than it should be. As a planned stimulus measure, the IRS requires employers to withhold a smaller amount each paycheck starting this month. However, for dual workers like my wife and I, the reduced withholding is being credited to us twice (once for each of our paychecks). This means we will have more money available in the short term, but could have an even larger tax bill at this time in 2010 -- because we'll have to make up for the current overpayment when it's time to square things up with the government.

We're not going to make much of an extra payment to our mortgage principal in April because of the tax bill. However, my wife picked up some extra work this month, so we should have a modest amount of additional income to help offset the big expense.

Monthly Summary: March 2009

2009-04-01T20:41:00.002-04:00

In March we made the first payment on our new 10-year loan.

Because of the refinance we did not have to make a February mortgage payment. As a result, we were able to add $6,500 additional principal to this month's normal payment, for a total principal reduction of $7,472.37. While this number looks impressive (to me, anyway), it is misleading for a couple of reasons. First, as I explained previously, the amount financed in the 10-year loan was greater than we actually needed, which meant we received a cash payment from the new lender. Part of the $6,500 amount was the surplus cash being returned to the loan. Second, we didn't make an additional principal payment in February, so we saved up the extra cash we would have applied to the loan last month, and tacked it onto this month's check.

We haven't yet realized any explicit interest savings on the new mortgage, though implicitly we saved interest because the new loan has a lower rate than the old one did.

Because of the prepayment we've shortened the term of the new loan by six months.

We have 45 months remaining in our original 5-year goal period, and must contribute an average of $3,122.87 each month to the balance to achieve that goal.

Our net change from the end of January to the end of March was a debt reduction of $4,534.91. This is an average of around $2,267 per month. This is lower than usual for us, but the cost of refinancing made the difference. I hope we make this up by the end of 2009, and start benefiting in 2010 and beyond.

April is going to be a challenging month financially, but I remain cautiously optimistic because of our plans for the rest of the year.

"Convenience" Fees and Bicycle Maintenance

2009-03-28T12:14:00.004-04:00

One of the questions I asked when initiating the refinance process was whether our new lender offered an online payment feature on their website. I was told they do. While this is true, I was disappointed to learn that they charge an $11 "Convenience Fee" for this service (for each transaction!). I complained about this to Customer Service, who explained that the new lender contracts with a third-party service to facilitate the electronic transfers, and that the lender doesn't profit from those fees.

I don't entirely believe this. I'm surprised that the fee would be so high, given that most major financial institutions allow for direct debit (aka electronic funds transfer, or EFT) free of charge. I pay some bills this way. Our old lender offered the service for free as well. If the new lender is truly not profiting in any way from those fees, then in my opinion they have made a poor choice of selecting a reasonably priced third-party service. If I was to submit 12 payments a year via the online payment feature, that would be an annual cost of $132! So instead, I'll just mail payment by check. This isn't my favorite approach, since there is always a lag time involved, and the chance that checks get processed incorrectly, or lost in the mail. But since postage is currently less than 50 cents per letter, I'll take advantage of the savings and monitor our account to ensure that funds get applied correctly.

I was also going to look into the option of online billpay. My only concern is that I don't know if my allocation instructions for extra principal would be received by the lender (even if I add them as a note on the transaction). If the lender doesn't receive specific instructions to apply extra funds to the principal balance, then they automatically apply them to the next regular payment on the schedule (which includes both principal and interest). That would do nothing to help us achieve our goal.

Meanwhile, my bicycle is all tuned up and ready for riding in 2009. I have learned how to make some adjustments myself, like fine-tuning the braking and shifting systems, aligning the headset (handlebars), cleaning and lubing the chain, and so on. But I wanted to have the wheels trued (made perfectly circular), which is a task that is beyond my current abilities. A colleague at work knows a guy who has worked as a bicycle service technician and manager for the past 15 years, who is now trying to start his own shop. Because of this, he charges less than the large bicycle store in town, and was able to complete the work in one day (the shop wanted 2-3 weeks). If anyone needs good bicycle service in southern New Hampshire, let me know and I'll send you his info.

I'm looking forward to cycling to work this year. Monday I'll resume the commute by human power. It's about time!

Monthly Summary: February 2009

2009-03-02T19:19:00.005-05:00

This summary won't be in the same format as prior entries because we are currently transitioning between two loans.

We paid a total of $725.06 interest to the two lenders in February, but we did not pay down any principal. In fact, the balance of the new loan is greater than the old mortgage. This is because (1) the new lender based the loan preparation documents on an old mortgage statement, and (2) the closing costs ($1,700) for the new mortgage ended up being included in the overall loan amount. Neither of these was what I wanted, but in the end it was convenient because we didn't have to come up with certified funds for closing. I'll just make a large payment in March on the new mortgage to cover two months of extra principal contributions. We'll pay a little more interest next month than we would have otherwise, but I can live with it, especially given the benefit we'll receive from interest savings in the long term due to the lower rate.

At the close of our original mortgage, our balance was around $145,062. If we hadn't made extra payments to the principal, we'd be sitting on a debt of over $178,900. Because of this, our cumulative interest savings since December 2007 were over $1,000. That's real money.

We still have 46 months left to meet our original five-year goal. We'll need to pay an average of $3,217.39 each month to meet that challenge. This number rose substantially this month, but will drop back down again after the March payment is complete.

Refinancing

2009-02-23T21:18:00.005-05:00

One of the most frustrating parts of having a fixed-rate mortgage (aside from the debt itself) is the arbitrary nature of the interest rate. While it's possible to find slight variations in rates between lenders when shopping for a loan, the most important factor in determining the rate (the collective credit markets) is beyond the borrower's control. After we locked in our 6.00% rate back in 2006, I had watched the average non-variable mortgage rate slowly trend downward. For a while I was tempted to refinanance, but every time I ran the numbers, I found that the difference in savings wasn't meaningful when offset by the closing costs required to draw up a new loan. This was magnified because we weren't planning to spread those savings out over a longer term (assuming we could keep pace with our goal of paying off the debt within five years or less). So after a while, I stopped paying attention to the rates. I convinced myself that it was unlikely we'd ever see a rate low enough to make refinancing pay off.

Then, about two months ago, my dad mentioned that he had refinanced his own mortgage (an adjustable-rate loan which was about to reset) at a rate much lower than we were paying on ours. I told him about my doubts, but he referred me to a lender who had reasonable costs and suggested that I explore it further. After I ran some numbers with the going rate, I realized that refinancing would actually benefit us even if we maintained our progress toward the five-year goal.

To make a long story short, we now have a new 10-year mortgage with a fixed rate of 4.625%.

There are three advantages to this new loan. First, and most obviously, the interest rate is lower. This means we will fork over less money to the lender each month, leaving extra cash which we can use to pay down the outstanding balance. Second, we reduced our term. Instead of having 10+ years left on a 15-year mortgage (which was our status as of the most recent payment on the old note), we now have a 10-year loan. This is a psychological advantage. And third, our monthly payments are lower. The lower payment (along with the shorter term) will benefit us greatly if we run into misfortune and have to suspend (or abandon) our goal. As it stands now, as long as we can make the (new lower) minimum payment, we will be mortgage-free in no less than 10 years.

I'm going to pause a moment and savor the rewards of our hard work to date. Had we not paid down the mortgage so aggressively in 2008, I doubt we would have been able to reduce our interest rate, term, and monthly payment in a single transaction. Ahhh...

There are some drawbacks, of course, primarily the closing costs associated with the refinancing transaction. We also had the hassle of providing a lot of paperwork to the new lender, and taking time out of our schedules to attend the closing. It may take us a while to get used to dealing with the new lender when making the first few payments. And, to top it all off, I have to figure out a way to account for the transaction in this blog when charting our overall goal progress. :)

Of course, the only significant drawback of those I just mentioned is the cost of the transaction itself. This amounted to about $1700, covering various fees, reports, certifications, and taxes. I ran several hypothetical scenarios through my spreadsheet model (using both the old mortgage and the new debt for comparison) and found that the cumulative monthly interest savings should allow us to break even somewhere in the next 9-11 months, depending on how successful we are at making extra principal payments. Since we are nowhere close to paying off our mortgage in a year or less, this transaction should benefit us in the long run.

One peculiarity of the whole process is that while we did make an interest payment during the month of February (partially to the old lender and partially to the new lender), we don't have to make our first principal payment until the end of March. So we'll save the payment we would have made this month (less the closing costs) and apply that amount toward our first payment on the new loan.

Now, wish me luck in figuring out how to make sense of all of this in our Progress numbers...

Monthly Summary: January 2009

2009-01-31T09:46:00.002-05:00

Today is one of those brilliant, cloudless, blue-and-white days that makes winter in New Hampshire so enjoyable for me. Plus, spring is not too far off...

Our January payment was the 33rd of 180 scheduled payments on our 15-year mortgage, and the 13th since we've been working on our five-year goal.

At the beginning of 2009, our mortgage balance was $148,043.79. We added $2,000 to the required payment, for a total principal reduction of $2,981.25 this month. The outstanding balance at the end of January stands at $145,062.54.

The mortgage balance is now $33,838 less than it would be if we had never made any extra payments to principal. If we had to stop making extra payments after this month, we would still pay off the mortgage three years and one month early.

We saved $158.40 in interest during January, for a total of $1,037.74 in savings during the life of this project.

The average monthly principal payment required for us to achieve our five-year goal rose slightly to $3,086.44.

2009 is already shaping up to be an interesting year for us financially. I'll elaborate on those details when they are known.

2009 Goal

2009-01-19T19:46:00.002-05:00

Since we exceeded our goal in 2008, my wife and I discussed whether we should increase our goal for 2009. We finally settled on keeping the goal amount the same this year as we had last year.

The arithmetic is simple: the yearly goal amount is the total principal amount from the start of the project ($188,983.82) divided by the number of years we gave ourselves to complete the project (five). This amounts to $37,796.76 per year. This is our goal for 2009.

The main reason we won't be increasing our goal for 2009 is because we won't be selling a vehicle this year. We exceeded our goal in 2008 by a little more than $3,000, which was almost exactly what we contributed to our mortgage from the proceeds of the car sale.

There are a few uncertainties in 2009. First, I have no idea whether we'll owe any income tax this year. Last year's tax bill was an unwelcome surprise. We did adjust our withholding in April 2008 to avoid another big bill, but there were three months at the start of 2008 when we may not have had enough withheld from our paychecks. I am hoping we owe only a small amount, or end up with a flat return. A refund would really surprise me, though.

Second, my wife will again be doing some contract work this summer. This could potentially increase our income, but it's hard to forecast how much demand there will be for her work. I can't predict how much this would add to our bottom line at this point.

Third, there is always a chance one of us will lose our jobs. We don't have any specific reason to fear this, but employment is far from certain these days. Obviously, if this happened, we would likely have to put the entire project on hold until we could find new work.

Still, I am optimistic for the future. I've been running some numbers through my hypothetical spreadsheet model and noticed a few pleasant future scenarios. Being realistic, I've filed these under "Don't count your chickens before they hatch."

If we pay $2,000 extra toward our principal every month beginning in January 2009, we will retire the loan in month 57 (three months early).
If we continue the pattern of payments from 2008 in 2009 and beyond, we will eliminate the mortgage debt in month 51 (nine months early).
If we contribute the same average extra amount to principal as we did in 2008 ($2,541.66), we will also complete our goal in month 51.

Right now I think scenario 1 above is most realistic given our current monthly income and expenses, but I'd be thrilled if we could achieve scenarios 2 or 3. Time will tell. If we do as well in 2009 as we did in 2008, we may have to set a more aggressive goal for ourselves in 2010.

Death of the Furnace

2009-01-11T22:09:00.004-05:00

In this blog's first entry I described the demise of our dishwasher, and lamented our first setback of 2008. Not to be outdone, 2009 threw its own challenge at us: our furnace died.

To be completely honest, the furnace was not entirely dead. Rather, we put it out of its misery. Our home was built in 1985, and the furnace was still original equipment. When we bought this house in 2006, the home inspector told us that the furnace was in decent shape, but was past its life expectancy and would probably need to be replaced in the next several years. Heating technicians made similar comments during their annual maintenance visits. Of course, they wanted to sell us a nice new home heating system, and offer us all sorts of snappy financing deals (no interest for a year!) so that we could replace our furnace without delay. We politely declined their offers, and started saving for the future.

I know very little when it comes to home furnace operation, but I'd take a peek at the furnace when the technicians would do their maintenance work. To me, the furnace always looked OK, and I knew it still kept the house warm throughout the worst that a New England winter could throw at us, so I was never in a hurry to replace it. This year, however, was different. When the technician came to visit in late December 2008, I tagged along as usual. Unlike previous years, the technician and I discovered the furnace was sitting in a pool of some sort of condensation, with mineral deposits all around. Additionally, the amount of carbon monoxide in the air duct was higher than it had been before. Apparently a trace amount of CO is always present, but the level this year (although not yet high enough to cause any health issues) was trending in the wrong direction. So after hearing the technician's description of a likely problem with the secondary heat exchanger, and how the flue gases were slowly corroding the furnace from the inside out (the source of the condensation), I realized that this was going to be the end. Within a week and a half, our old furnace was gone, and a brand new system was sitting in our basement.

My wife and I decided to purchase the highest-efficiency model that was compatible with our existing duct work. In the end, we parted with over $7,000 of our savings. On one hand, it was tough separating with so much money all at once. However, we were both glad that we had saved for this occasion, and didn't have to incur any new debt to keep our house warm and (hopefully) carbon monoxide free. And fortunately, we didn't exhaust our entire reserve account on this purchase.

We'll continue to keep putting a set amount into our savings each month, as we have been doing for several years now. And while it may have an impact on how much extra principal we feel comfortable applying toward the mortgage over the next few months, we don't anticipate that this will be a significant setback. The contribution to the savings account is always a separate line item in the budget from our extra principal payments. Of course, another major home expense could change things. Right now we're hoping for the best and preparing for the worst. I suppose that's the best any of us can do, right?

2008 in Review

2008-12-28T23:24:00.004-05:00

Year One is finished. Our mortgage is one-fifth closer to its death. Although paying down a long-term debt can seem like a maddeningly slow process at times, I am surprised at how quickly the past twelve months have passed. I'm pleased with the progress we've made so far, and look forward to continuing the attack on our mortgage in 2009.

Although I never published this in any previous entry, my goal for 2008 was for us to pay down one-fifth of the balance at the beginning of our project. This amount was $37,796.76 (one-fifth of $188,983.82). We actually reduced the balance by $40,940.03, which means we achieved 108% of our goal in 2008.

Of the $40,940.03 we paid toward the mortgage debt, $30,500 came out of our own pockets as extra contributions against the balance. This was an average of about $2,540 per month. Our highest extra amount was $5,000, and our lowest was $750. I'm glad we didn't have to skip payments in any month this year.
The remaining $10,440.03 came from our regular monthly payments (the principal portion of each required installment). At the beginning of 2008, the principal portion of the regular payment was about $775; by the end of the year, it was over $950. If we had not made any additional principal payments, this number would have only been about $820 by December 2008. The difference between those numbers represents our interest savings each month (I publish that in the monthly summaries).

When we started this project, I calculated that we would need to pay $3,149.73 per month in order to retire the mortgage within five years ($188,983.82 divided by 60 months). Today that number stands at $3,084.25 ($148,043.79 divided by 48 months). In early 2009, the principal portion of our regularly monthly payment will start to exceed $1,000 per month. This means we'll only need to come up with around $2,000 extra each month to achieve our goal. Since we managed to average well over $2,500 each month in 2008, I am hopeful that our progress in 2009 will continue on the 2008 pace.

Our biggest change in 2008 was selling our second car and becoming a one-car family. This hasn't affected our lifestyle as much as I originally thought it would. Aside from needing to plan our trips more carefully, I haven't felt like we've lost much in the way of freedom. We're spending time together in the car now, which suits me just fine (I like my wife's company).

My wife and I have talked about how we've shifted our behavior so we don't automatically buy something if we sense a need (or want, whim, desire, etc). We discuss our purchases together and decide whether spending money on a particular item or service is our only option. We also think of money in terms of time. Every $1,000 we spend roughly equates to one month less on our mortgage. If we're tempted to buy something that costs $250, for example, we ask ourselves if it's worth potentially postponing our debt-free lifestyle by another week in order to make that purchase (although the answer is sometimes "yes", more often than not, it's "no").

Overall, I would say that Year One has been a positive experience. I've paid more attention to our spending in 2008 than I ever had before. I learned that if one of us lost our job, we could still get by on a single income for an extended period of time if needed (though without the luxury of paying extra toward the mortgage). This is reassuring now when there is so much uncertainty in employment, stock markets, housing markets, and the cost of living. In a way, making the decision to pay down our mortgage has insulated us somewhat from this turmoil, as we have a plan for our future success and are on track to see it through. Our family and friends have been (mostly) supportive of our efforts, which contributed positively to this project.

My wife is a wonderful partner, and has helped me stay focused when the stress of work or unexpected expenses frustrated me along the way. She's shown enthusiasm for cutting our spending, and is focused on increasing our income as well. Thanks, baby, for all of your hard work and determination! I love you.

Monthly Summary: December 2008

2008-12-28T20:56:00.002-05:00

December was a great month for killing the mortgage. We were able to make a very nice extra payment of $5,000. Two factors worked in our favor. First, my wife receives a paycheck every two weeks, and due to the luck of the calendar, she was paid three times in December. Second, I was fortunate enough to get an end-of-year bonus at work. I wasn't sure if bonuses would be available this year, so I was thrilled to learn that I earned one. I feel very fortunate that both of us are still employed and earning a decent income at a time when the news is filled with stories of job cuts and economic hardship.

The December payment was the 32nd of 180 scheduled payments on our 15-year mortgage, and the 12th since we set our five-year goal at this time last year.

We started December with a balance of $153,995.28. By adding $5,000 to our regular monthly payment, we reduced the principal by $5,951.49. This brought the outstanding debt to $148,043.79 at month's end.

We are $31,679 ahead of where we would be if we'd never made any extra payments against our mortgage. If we abandoned this project now, we would still be able to retire the loan two years and 11 months ahead of schedule.

We saved $132.73 in interest last month, which brings our total interest savings to $879.34 since the start of the project.

Because we exceeded the average payment from last month, the new average monthly principal amount required to pay off the debt within our goal period fell to $3,084.25.

Although I plan to expand on this in a separate entry, I'm pleased to report that the December payment allowed us to exceed our first-year goal! Hooray!

Bicycling to Work in 2008

2008-12-05T22:57:00.005-05:00

Thanks to shortened daylight, I stopped riding my bicycle to work during the last week of October. I'm concerned for my safety riding in darkness through a couple of congested areas. It's also been getting pretty cold here in New Hampshire, and icy roads will start to make an appearance in the very near future. Since I stopped riding, I've been driving the car to work, and picking my wife up from her job on the way home from work (she gets a ride from a co-worker each morning).

I really miss pedaling home each afternoon. Instead of dealing with the afternoon traffic jam, I rode down gravel trails, through wooded areas, and on residential back roads. Instead of arriving home frustrated by the antics of other drivers, I'd feel refreshed from the exercise. The opportunity to be alone with my thoughts for about 30 minutes was a great opportunity to shift my focus away from the work day and toward my free time at home. And beer from the fridge tasted much, much better after I'd burned off some calories (and worked up a thirst for it).

I bought the bicycle in the spring of 2007 with the intention of riding to work about half of the time. This was before my wife and I had decided to wish Death to the Mortgage, so we had two cars back then. My cycling goals were to get in better shape, to spend less money (on gas and maintenance for operating the car), and to create less pollution and carbon emissions. I rode to work about two or three times a week, in good weather, and got a taste of the demands of commuting by bicycle. Unfortunately my cycling experience was cut short last year when I was injured midway through the summer. So the bicycle sat in the garage and collected dust for about seven months.

By the time 2008 rolled around, my wife and I were toying with the idea of selling one of our cars and becoming a single-car family (which we did), so I decided to commit myself to relying on the bicycle as my primary form of transportation to and from work during the warmer, brighter months of the year. I started out in late March, pedaling along in a hat, thick gloves, and boots. The hat and gloves kept my body warm; the boots protected my feet for the last 1.5 miles of the commute, where I had to walk/ride my bicycle through the melting snows of early spring (still lingering on the wooded trail). Riding a bicycle through snow is difficult. Riding one through icy slush in the shadowy woods is near impossible. But it still beats morning traffic!

I rode through the cold, the heat, and the pouring rain. I rode up steep hills and relished the cool rush from coasting down the other side. I got into the best shape I've been in since I was on the swim team in high school (and I was in great shape back then). And I enjoyed it so much that for the first time in a very long time I didn't mind getting out the door in the morning, since the fun bicycle ride was ahead of me. (If only I could have been going somewhere more interesting every day.)

Depending on the route, my work is between 7 and 10 miles from our house by car. My average bicycle ride was about 8 miles each way. My commuting time increased from about 10-20 minutes each way in the car (depending on traffic) to about 30-40 minutes each way by bicycle (depending on my energy level), although the walk through the snow added about 20 minutes to the route during late March and early April. Between March 24 and October 24, I relied on the car to get to work only about ten times (for a variety of reasons, including a snowstorm, being run down by a bad cold, and the occasional flat bicycle tire). In total, I would estimate I avoided putting about 1,800 miles on the car this year, calculated thusly:

Average 16 miles per day not driven to and from work
Average 16 days per month I would have used the car (some days would not have required the car, as I either worked remotely from home, took a bus to Boston, or was on vacation/holiday)
Seven month duration (March 24 through October 24)
16 * 16* 7 = 1,792 miles not driven

My wife also used her bicycle to go to and from work on occasion, but certain factors (especially the absence of a shower at her work) limit her ability to ride in all weather. Still, there were a number of days during the pleasant late-spring weather where both of us pedaled to work and left the car(s) sitting idle at home.

I can see from my expense spreadsheet that we spent less on gasoline during the summer of 2008 than we did during the summer of 2007, even though the price of gasoline was considerably higher, and we drove over 3,200 miles to and from Minnesota this July.

Looking back at the goals I had in mind when I purchased the bicycle, I can gladly say that I met all three during 2008. I got in great shape, spent less on the car's operating expense (fuel), and avoided 1,800 miles of exhaust from combustion.

I'm looking forward to the return of Daylight Saving Time (March 8, 2009) so I can start preparing to ride again. I'm also looking forward to the eventual Death of the Mortgage so I can regularly ride my bicycle to places more satisfying than the office!

Monthly Summary: November 2008

2008-11-30T23:48:00.004-05:00

Another month has come and gone. I've had plenty of thoughts rattling around inside my head recently, but for whatever reason I haven't been inspired to publish any of them. At the very minimum I am committed to posting these monthly updates. I expect someday I'll return to more frequent entries, but for now it's been nice to take a little break from the blog.

November was not as as much of a challenge for us as October was. However, without any extra income during these fall months, the best we can seem to do these days is to make relatively modest contributions toward the mortgage, when compared to the amounts we were able to save earlier in the year.

The November mortgage payment was the 31st of 180 scheduled payments on our 15-year note, and the 11th since we set our five-year goal.

We began the month with an outstanding balance of $156,185.82. We made an extra principal payment of $1,250, which brought the total amount applied to the debt to $2,190.54 in November. This payment reduced the balance to $153,995.28 by the end of the month.

We're now $26,547 ahead of schedule on our mortgage, and would pay off the loan two and a half years early if we ceased all extra payments at this point.

We saved $125.85 on our November interest, which means our total interest saved since the beginning of the project now stands at $746.61.

The average monthly principal payment required to meet our five-year goal rose again this month to $3,142.76.

With one month remaining in 2008, we must reduce the loan balance by $2,808.22 in December to meet our goal for the first year. I am still optimistic that we can meet this goal, since we anticipate a small amount of extra income next month.

Monthly Summary: October 2008

2008-11-02T23:14:00.002-05:00

I have mixed feelings about our progress in October. On one hand, at mid-month I was unsure if we'd be able to make any extra principal payment at all; and yet, we were able to make a modest payment above and beyond the minimum required amount. But on the other hand, we've definitely lost the extra cushion we once had on our 2008 goal because of the smaller payment this month. It could be a struggle to meet our goal with only two months left in the calendar year.

Last week we made the 30th of 180 scheduled payments on our 15-year mortgage. This was the tenth payment since we set our five year-goal.

At the beginning of October, our outstanding balance was $157,867.95. By adding $750 to our regular monthly principal payment, we reduced the loan amount by $1,682.13, to $156,185.82.

We are fortunate to be over $25,171 ahead of schedule on our loan at this point. We'd pay the debt off two years and four months early even if we abandoned the project right now.

We saved $121.50 in interest during October, bringing our cumulative interest savings to $620.76.

I'm disappointed to see that the average monthly principal payment required to meet our five-year goal rose to $3,123.72.

To meet our debt reduction goal for 2008, we still must bring the balance down by $4998.76, or just under $2500 per month for the next two months. This is within our reach, but any other unexpected expenses could seriously jeopardize our ability to achieve this first-year goal. Controlling holiday spending could be the deciding factor.

Life Goes On

2008-10-13T22:55:00.007-04:00

Two Fridays ago my sister called me at work with news that my grandfather had died. My wife and I took bereavement leave and arranged to fly down to Texas to attend the funeral. We visited with family, and helped my parents, aunt, and cousin begin the unwelcome task of cleaning out my grandfather's house.

Following the funeral, we attended a reception with family, then went out to dinner. My wife turned on her phone to call and check on our dogs (they were staying with a friend), and found a voice message from her father stating her grandmother had been hospitalized. We were not scheduled to return home right away, so for the next two days she was in close contact with her family, hoping for good news about her grandmother's condition.

We flew back to New Hampshire on a late flight, arriving at our house at 2 AM, then woke up the next morning and drove two hours to my wife's hometown to be with her family. Her grandmother fortunately made a recovery and was able to return home. After more than a week of family gatherings, we made our way back to our house with mixed emotions, yearning for a night of good sleep.

We probably won't be making a meaningful extra principal payment this month. Last-minute airfare is rarely inexpensive, and in today's economy the airlines are not willing to offer discounts for funeral travel as they did in the past. After including the cost of a hotel, a rental car, meals, and other miscellaneous expenses in Texas, along with the gas, food, and other purchases we made in my wife's hometown, we spent around $1,500 this month which was not in our budget. This is coincidentally the same amount I was hoping we'd put toward our mortgage in October (above and beyond our normal payment).

I asked my wife if we should use our emergency savings to pay for the funeral trip, so that we could stay on track to meet our 2008 mortgage prepayment goal. After a discussion, we decided that while the expense was unexpected, it was not truly an emergency. That money is reserved for loss of income, health-related bills, or sudden expenses that must be covered quickly in order for us to keep our home and our jobs (for example, if our furnace suddenly breaks in the middle of January). And since we were slightly ahead of our 2008 goal after September, we decided to take the hit on the mortgage in October, and focus on minimizing our spending through the end of the year. If we somehow are able to make any additional payment on the mortgage this month, I will consider that a bonus.

Although this blog's title may sound morbid, Death to the Mortgage is ultimately about life. My wife and I are taking steps to gain control of our financial life now, so that we can have the freedom to enjoy the rest of our lives together, unencumbered by debt. As our grandparents reminded us last week, our time in this world is finite. We want to make the most of the time we have left. We believe that retiring our mortgage debt early is an important first step toward achieving our dreams.

Granddad, thanks for the memories. You are loved, and will be missed.

Monthly Summary: September 2008

2008-09-30T22:52:00.002-04:00

Goodbye, September. Goodbye, summer. Hello, autumn colors and baseball playoffs.

Without any extra income forecast in our budget for October and November, we made a smaller-than-normal extra principal payment in September. This keeps a buffer in our bank account while still allowing us to make another modest dent in the mortgage balance.

The September payment was our 29th of 180 scheduled payments on our 15-year loan, and the ninth since we set our five-year goal.

We started the month with a balance of $160,287.98. A $1,500 extra principal payment when combined with our regular monthly principal amount brought the total principal payment to $2,420.03 in September. The outstanding balance fell to $157,867.95.

We are over $24,299 ahead of schedule on the mortgage. If we abandoned this project now and made minimum payments for the duration of the term, we'd still pay off the loan two years and four months early.

This month we saved $113.43 in interest. To date we've avoided $499.26 in interest payments.

The average monthly principal required for us to meet our five-year goal rose slightly to $3,095.45, as we didn't match the amount required from last month. However, despite our underachieving September, we're still in good shape to meet our goal of a $37,796.76 reduction in principal in 2008. We have three months left this year to bring the balance down another $6,680.89, which amounts to $2,226.96 per month. This is consistent with the smallest total principal payments we've made during the past nine months, so I feel confident we can achieve our goal for Year One.

We're going to watch every penny over the next few months to stick within our budget. After nine months of our more frugal lifestyle, it's becoming easier and easier to resist the desire to spend.

Bicycle Maintenance

2008-09-20T21:08:00.004-04:00

I spent a couple of hours in the sunshine today working on my bicycle. When we were visiting my family in August, my brother-in-law gave me a demonstration on how to adjust the disc brakes, shifters, and other moving parts on his bicycle. I came back excited to do the same work on my own bike, and found that my components were different, which initially discouraged me. I had been procrastinating recently, but over the past week the brakes became noticeably less responsive, so today I pulled out all of the literature that came with my bicycle and read through it, beginning to end. It was descriptive enough for me to (eventually) figure out how I could make the necessary adjustments on my own. I'm glad I had seen my brother-in-law's demonstration, because it would have been much more difficult to perform the maintenance on my bicycle relying only the printed material. Now my brakes are tight, my gears shift nicely, and my chain is clean and silent.

I definitely belong to the low-cost school of bicycle maintenance. While a true gearhead would mount the bicycle on a repair stand in the garage (to hold the wheels off the ground with the moving parts at eye level), I wheeled my bicycle to the end of the driveway and turned it upside-down, letting it rest on the seat and the handlebars. I will confess to spending $10 last month to buy a multi-purpose bicycle maintenance tool (with hex-heads and screwdrivers of various sizes), but otherwise I didn't have to spend any new money to do the repair work. I'm not sure what the bike shop would have charged for a tune-up, so I don't know how much money I "saved" by doing the work myself. Although avoiding the repair bill was nice, I really appreciated staying at home instead of dealing with the hassle of riding (or driving) the bike down to the shop. I got to enjoy my own space, in the company of the dogs (resting in the grass and enjoying the sunshine and nice cool weather). And, of course, I had the satisfaction of learning a new skill which I hope to continue to improve on in the future. I'm also pleased to report that I'm now adept at replacing innertubes (a task which once seemed daunting to me).

I don't know how much longer I'll be able to rely on the bicycle as my primary mode of transportation this year. I started riding to and from work during the last week of March, after daylight saving time had already started, when the days were growing longer. Though we're still at least a couple of months away from lingering snow or ice here in New Hampshire, the arrival of the autumnal equinox on Monday means that I won't have as much sunshine to light my way (and keep me visible to drivers on the road). Daylight saving time ends on November 2 this year. The US Naval Observatory has a website which provides daily sunrise/sunset data for any spot in the world. For example, on October 31, the sun will rise after 7 AM here in NH, and will set before 6 PM. This means I could be riding in semi-darkness before and after work. Just after the return to standard time, on November 4, the sun will rise before 6:30 AM (fine) but will set around 4:30 PM (dangerous). If I want to ride in November, I am definitely going to need illumination, for my own benefit (to see where I'm going) and the benefit of those around me (so drivers don't run over me with their cars). I haven't decided yet what to do. I don't want to spend a bunch of money buying new illumination gadgets for the bicycle if I'm only going to be able to use them for a few weeks anyway. By December I'm sure it will be icy enough in the mornings that I'll have to stop riding altogether. At least I have a beautiful companion (my wife) to carpool with during the winter months!

Controlling Spending

2008-09-10T01:01:00.003-04:00

Even though we've managed to make steady progress during the first eight months of our five-year goal period, my wife and I realize we had some help along the way. First, we sold our second car back in May, resulting in a one-time cash receipt. And second, my wife worked a second job for a few months during the summer, but that's finished, and we probably can't count on that income again until June 2009 at the earliest. For the rest of 2008, we will be relying solely on our regular income to generate extra principal payments. This means that watching our expenses will be critical if we want to stay on our current pace. We both have a list of items that we'd like to have right now, but we're going to try to cut back on (or eliminate?) anything that falls into the "want" category unless it truly becomes a "need".

For example, my hiking boots have started to show their age and will probably not last another full hiking season (this means that the seams in the leather are starting to split open and will eventually tear free from the sole). However, with winter coming, I won't be using them as much as I have been recently (just some light autumn day trips and the occasional walk in snowshoes during the cold months). Therefore, I'm going to defer that expense for as long as possible, keeping a eye out for any sales which would reduce the cost of the new boots significantly. Meanwhile, cash that might have been used to buy a new pair of boots (at full price) in September will be used to pay down the mortgage. While the cost of boots is insignificant compared to our outstanding mortgage balance, when combined with all of the other expenses we're deferring or eliminating, the cumulative effect should help us stay well-positioned to meet our goal.

Note: I realize not everyone would classify hiking boots as a "need". I am using a broader definition of "need" which is not limited to survival items, but which includes things we use regularly. By this definition, the first pair of hiking boots is a "need", while the second pair is a "want".

Monthly Summary: August 2008

2008-09-01T23:01:00.003-04:00

As I mentioned in my previous entry, the $1,500 extra principal payment we sent to our lender during the first week of August was credited against the July balance. I've updated the July Summary to reflect the correct totals.

The August payment was the 28th of 180 scheduled payments on the 15-year mortgage. It was our eighth payment of the 60-month goal period.

Our outstanding balance at the beginning of August (adjusted) was $164,188.51. Through a combination of lower expenses and extra income, we were able to make an additional principal payment of $3,000 this month, for a total principal payment of $3,900.53. This reduced our debt to $160,287.98.

We now find ourselves $22,686 ahead of schedule on our payments. Our work so far has reduced the term length by 2 years and 2 months.

We saved $97.94 in interest this month, bringing the total interest saved to $385.83.

Because we paid more in August than the average principal required to meet our five-year goal, the new average payment amount fell to $3,082.46.

I'm very encouraged by our progress so far in 2008. With two thirds of the year now behind us, we find ourselves ahead of our goal pace for the first eight months. Let's keep this train rolling!

Good News

2008-08-30T23:53:00.003-04:00

I sent the August mortgage payment to the lender earlier this week. After checking the interest amount they charged for August, I was able to determine that the $1,500 extra principal payment we sent during the first week of the month was in fact credited against July's balance, not August. This is good news for us because we get the benefit of one extra month of interest savings on the $1,500, which will continue to compound until the mortgage is paid off.

My latest guess is that any payment we send to the lender (whether a normal payment or an extra principal amount) which is received prior to the late date (the 15th of each month for us) gets applied to the prior month's balance. I'll continue to test this hypothesis going forward as conditions warrant.

I'll go back and update July numbers to include that extra principal amount in the near future. I'll also post our August summary by the end of this long holiday weekend.

Payday

2008-08-20T00:17:00.003-04:00

It's been a quiet August around here. My wife recently received the final paycheck for her summer contract work. That puts us in great shape to make a decent payment to principal this month.

On a similar topic, both of us received raises over the summer. If we stick to our pre-raise budget (always a challenge) then the extra cash should help us keep the momentum going as we move into the autumn months.

Enough with the typing; now back to watching the Olympics!

One Week Too Late?

2008-08-04T21:19:00.002-04:00

So, as I predicted in my previous entry, my wife's paycheck was in the mail today. She dropped it off at the bank this afternoon. I scheduled an extra principal payment of $1,500 to occur by the end of the week. I won't know whether the lender will apply it to the balance in July or August until we receive the August statement. And that won't happen until I send the standard payment for August (which probably won't happen until the last week of the month).

My prediction is that they will consider it part of our August payment, since we've already received the statement for July. But I'll be pleasantly surprised if they honor the 15-day grace period and credit it retroactively to the July balance. More to come on this in about a month.

Monthly Summary: July 2008

2008-07-31T19:45:00.007-04:00

***Update September 1, 2008***
The $1,500 principal payment we sent to our lender in early August 2008 was credited against our July balance, and therefore the numbers I originally listed for July turned out to be wrong. Here is a quick snapshot of the corrections:

Additional Principal Amount: $1,500
Total Principal Payment: $2,388.58
Amount Ahead of Schedule: $19,588
Interest Saved in July / To Date: $89.99 / $287.89 (no change)
Average Principal Payment Required to Meet Goal: $3,097.90 (slight increase from June)
Outstanding Balance at End of July: $164,188.51
***End Update; Original Entry Follows Below ***

July marks the first month since my wife and I began this project in which we did not make an additional principal payment. There are three primary reasons for this:

Since my wife was paid in advance for some work at the beginning of the summer, we already made a large payment to principal during June. I could argue that we've already made our extra payment for July (but I won't).
We paid most of the cost of our vacation during July. This expense reduced the extra cash we had to contribute toward the mortgage this month.
My wife isn't going to be paid for her July contract work until August due to the mysterious nature of her employer's payroll calendar. I expect we will be able to make a slightly-larger-than-normal additional principal payment next month.

When it became clear to me that we wouldn't be receiving my wife's paycheck in time to put it toward an extra payment during July, I reluctantly made our standard (aka minimum) payment a few days ago. This is how we paid our mortgage during the first 19 months we lived in this house, but it felt odd not to be adding something additional this time around. I guess I've already shifted my expectations so that extra payments are the the rule, not the exception.

And so, our July payment was the 27th of 180 scheduled payments on the 15-year loan, and the seventh since we set our goal to rid ourselves of the debt within five years.

The balance at the beginning of July was $166,577.09. As previously mentioned, we did not make an additional principal payment, so our standard payment reduced the overall balance to $165,688.51 at month's end.

Despite skipping the extra principal contribution this month, we are still about $18,088 ahead of schedule on our payments. And because of our prior efforts to date, we still saved $89.99 in interest this month, bringing our total interest savings to $287.89 so far.

The average principal payment we need to make monthly to meet our goal rose to $3,126.20.

If we receive my wife's paycheck before the 15th of August, I'll go ahead and send it to the lender in hope that they will apply it toward July's balance, since that would fall within the grace period. I'm not clear how our lender handles additional principal contributions received during that window, so it will be an interesting experiment (interesting to me, at least).

The sunset on the last evening of July is beautiful here in New Hampshire. Here's to a wonderful August.

Extra Scratch

2008-07-18T22:43:00.003-04:00

My wife just returned from a week-long business trip. She's taken on additional work this summer to bring in some extra income and explore the possibility of a future career change. Later this month she is committed to another week-long stint with the second job. She has to file an expense report before getting paid for her recent work. Because of that, I am not sure whether we will be able to make an additional principal payment on the mortgage in July, or if (due to the time associated with processing her check) we will have to wait and make a more sizeable contribution in August. My hope is that the check comes in while we still have time to pay in July, so we can save one more month of interest on the principal reduction.

When attacking a fixed-rate mortgage, it's best to make payments as early as possible to maximize the compounding of interest saved over time. For example, every $1,000 of the loan at a fixed interest rate of 6 percent will accrue $5 in interest charges each month the balance remains unpaid (0.06 divided by 12 months, multiplied by $1,000). Over five years, a principal reduction of $1,000 will result in $300 total interest savings if the debt is paid off in month 1, versus only $60 in savings if the debt is paid off at the beginning of year four (month 49).

My wife is exploring her options with the second job right now. I haven't yet included her projected summer income in our budget for the rest of the year. Once the checks do finally arrive, I expect her to take some personal fun money off the top since she made the extra effort to earn it. She told me that whatever remains will be directed toward the mortgage. I look forward to seeing the outstanding balance continue to drop during the coming months. I'm also thrilled to have a partner who is fully committed to aggressively eliminating our last remaining debt.

Not This Year

2008-07-16T22:54:00.002-04:00

Today in the mail we received the annual automobile registration renewal form from our town. This bill was for the car we sold back in May. Most of the financial benefits that come from living the one-car lifestyle are easy to overlook (fewer repair bills, less routine maintenance, fewer trips to the gas station), so it's nice to get such a direct reminder that we are, in fact, spending less on car ownership now than we had in the past.

That's $175 that we can use for something else in 2008! Any guesses as to where I plan to direct the surplus?

Royale (with Cheese)

2008-07-13T22:05:00.004-04:00

My wife and I recently returned from our big vacation trip of 2008. We packed up our little car and drove from New Hampshire to Grand Portage, Minnesota, where we caught a ferry to Isle Royale National Park, which is located in the middle of Lake Superior. On the way to Minnesota we stopped in Chicago to visit with some friends for a day. Our goals for the trip were to have relatively low-cost (or free) experiences, to see a new part of the country, and to enjoy ourselves. We accomplished all three.

There were three main expenses associated with the trip: the cost of driving to and from northern Minnesota, the cost of taking a ferry to and from Isle Royale, and the cost to have someone watch over our dogs in our absence. Our main activities while on the island were backpacking (hiking and camping). Since both of us like to do this on a regular basis, we didn't need to buy much in the way of new gear, though we did spend some money to purchase a few key items (a new backpacking stove and a new water filter). We also replaced my wife's old sleeping bag and backpack, but we partially offset the expense of the new equipment by selling her old stuff.

Here is the expense report for the trip:

Round-trip ferry fee (two adults, paid in February): $248
Park user fee ($4 per person per day, paid in February): $56
Gasoline: $341
Highway tolls: $48
Vehicle maintenance: $229
Lodging (Grand Portage, MN): $43
Meals (including treating our Chicago hosts to dinner): $114
Entertainment: $14
Gear (net cost): $204
Pet care: $358

The total above comes to $1,655, or about $828 per person. Our trip lasted 11 days, so the cost per person per day was about $75. Since we paid for the ferry and park fees back in February, we were able to spread some of the cost over several months. Because our car was due for a tune-up anyway, I was unsure whether or not to include the vehicle maintenance cost in the overall trip expense list; but given that we drove over 3,200 miles round-trip, we put enough additional wear on the car that we'll be taking it in for regular service again soon. Therefore, that expense stays on the list.

Given the experience we had, I'm satisfied with the cost of the trip. Of course, we could have stayed home the entire time and potentially had around $1600 more to put toward the mortgage, but we both feel it's important to treat our vacation as part of the yearly cost of living, and we've been budgeting and saving for this trip for months. While on the island, away from the stresses and pressures that make up our daily lives at home, we were able to make lasting memories, catch a glimpse of the natural world unspoiled by human exploitation, and simplify our day-to-day thought processes (our most complicated daily decisions were which campground to hike to and which meal to cook for dinner). The rewards we received from taking the trip were definitely worth more to us than the potential benefit of a $1,600 reduction in our outstanding mortgage balance.

For those with a love of the outdoors, an interest in seeing wilderness for miles in any direction, an appreciation for peace, solitude, and simple living, and a desire to challenge yourself physically, Isle Royale is a great place to spend a week (or more). I highly recommend it. It's a shame that there aren't many truly wild places left in the world, but this island is about as close as you can get to an unspoiled landscape in the lower 48 states.

Monthly Summary: June 2008

2008-06-27T23:51:00.005-04:00

The June summary comes a few days early because my wife and I are headed away for vacation and will be without internet access for a little while.

June's payment was the 26th of 180 scheduled payments on our 15-year mortgage. It was also our sixth payment since we established our five-year goal.

We started this month with an outstanding balance of $172,436.38. We made a $5,000 (!!!) extra payment to principal, bringing our total principal payment to $5,859.29 in June. Our new balance stands at $166,577.09.

We're now $17,998 ahead of our scheduled mortgage balance. We could stop making extra payments now and still pay down the debt twenty-one months early.

This month's saved interest amount was $64.67. To date, we have saved $197.90 in interest payments.

Our average required monthly principal payment to meet our five-year goal dropped to $3,084.76.

My wife got an advance payment for some summer work she's doing, which helped us make a larger-than-normal extra principal contribution in June. Our July and August payments may be smaller than past months as a result. However, if we can focus on saving (especially during vacation), we may be able to end the summer months in great shape to meet our first-year goal.

Falling Equity

2008-06-25T22:37:00.007-04:00

Every day it seems like I notice another headline about home prices falling around the US, occasionally accompanied by similar news from other parts of the world. For example, today's financial reports include an article from the Associated Press which states that sales of new homes in the US are down when measured two ways: (1) the number of homes sold, and (2) the median sale price. Similar trends are occurring in sales of existing homes.

Websites like Zillow.com track approximate prices of homes around the US. Our house's estimated price has been falling steadily during the few months I've been checking (an exercise to help establish our monthly net worth). [By the way, "net worth" is a term I absolutely despise, because it values an individual or household only by monetary assets, when a person's true worth rarely has anything to do with money; but in the absence of a better term, it seems that I'm stuck with it for now.]

Does it bother us that my wife and I agreed to pay thousands of dollars more for our house than it would likely sell for now? Not really. I owned a townhouse condo before we bought our current residence, and used the proceeds from the condo's sale as our down payment. Had we waited until housing prices moved lower before selling the condo and buying a house, I wouldn't have received as much from the sale of my previous property, and therefore, our available down payment fund would be proportionally smaller. Sure, we could have sold the condo and rented for a while, but we would have dealt with the hassle and costs associated with moving more than once. And there's simply no way for anyone to know when the housing market has "hit bottom," so what would have been our cue to stop renting and buy a house?

There are a few important reasons why I'm not bothered by the downward trend in home prices. First, the decline in our assessed property value's translates directly into lower taxes every six months. This is the silver lining of the housing slump, and since we have no plans to move anytime soon (and turn a paper loss into a realized loss), the tax savings become a miniature windfall which we can funnel back into our mortgage principal payments.

Second, our goal is to eliminate our debt completely, which means we don't want to tap the equity in our home for any reason. I was delighted to pay off (and close) the HELOC we had used for initial expenses when we bought our house (such as replacing windows and doors). If the equity in our home falls, it does not affect our spending plan, as we don't rely on equity borrowing to finance the rest of our life.

Third, and most importantly, we didn't buy our house as an investment property; we bought it because we wanted a place to live, and really liked what it had to offer. At the time we were ready to begin our lives together, my wife and I spent months searching for the house that best suited our anticipated wants. This house continues to be a source of daily enjoyment for both of us. Its primary value is its utility: we sleep, eat, clean up, work, relax, find shelter, store and organize, entertain, provide for our dogs, and feel secure inside its walls. I'm grateful to have this place to call our home.

The June mortgage payment is complete. I'm excited about our progress this month. I'll elaborate on that in a few days.

Time = Money

2008-06-17T20:48:00.004-04:00

Our summer income is going to be a little unpredictable, so I've run several possible scenarios for the next few months through my hypothetical model of our mortgage amortization schedule. I've noticed a pretty consistent relationship between extra principal payment amounts and the length of time until our mortgage is paid in full. Right now, each additional $1,000 we pay to principal translates into one month that we won't have to make a mortgage payment in the future. We've felt the desire to spend recently, as we're going on vacation at the end of the month (and we're tempted to stock up on new camping equipment). The recognition that a new $250 pair of boots represents one more week of future debt payments is helping me stay focused and committed to our goal: premature mortgage death.

Summer Happenings

2008-06-11T22:18:00.002-04:00

My wife and I held a yard sale this past weekend. Even though the weather was unseasonably hot, we had reasonable success. For 5 hours of work, we earned around $75, and in the process got rid of a bunch of stuff we didn't want around anymore (including VHS movies, books, and trinkets that I was surprised anyone would ever want to buy). The $75 isn't going to make a huge impact on our savings, but considering that (a) we sold many items for only 50 cents or $1 each, and (b) we got money for stuff we were willing to get rid of for free, I'm pleased with the result. Plus, we got to meet some of our neighbors, which was an added bonus.

The escrow refund check from our lender arrived last week. I used it to buy a money market fund. I then scheduled a monthly purchase into the fund (from my paycheck) to replace the escrow amount that was previously included in our mortgage payments. Our property taxes are due July 1, so I will soon be making a partial withdrawal from our homemade escrow fund to cover that bill. We'll be left with a decent balance in the escrow fund which will grow monthly with each paycheck until the second half of our property taxes come due in December. There's enough of a buffer that I don't expect the escrow fund balance to ever dip below $1,000 (even immediately after making a withdrawal for tax payment).

The unusually hot New Hampshire weather this past week (highs in the 90s F for the better part of five days) had a lot of people hiding indoors with their air conditioners turned to high. My wife and I tried a less expensive cooling technique which worked reasonably well. In the evening, we opened all windows in the house and used a combination of two window fans upstairs to draw in the cool outside air (on the shady side of the house) and exhaust the hot indoor air (on the sunny side of the house). We let the window fans run all night long, then shut the windows in the morning to trap the cool air inside, and pulled down the blinds to block the hot daytime sun. This worked well for the first two days, but by the third day the evening temperature didn't drop enough to cool the house as much as I would have liked. I offered to turn on the air conditioning, but my wife insisted that we keep it turned off to save money. In the end it worked out just fine. We sat near fans, spent time outside with our dogs, and ventured down into the naturally cool basement when we needed to feel refreshed. Today's weather was more temperate, and it's comfortable inside our house once again.

I'm even more impressed that my wife rode her bicycle to work all three days this week, even though she doesn't have access to a shower at work. She reported being a little sweaty on arrival, but since she leaves early in the morning, she was able to avoid the worst of the heat until the return trip home (when being sweaty isn't as much of an issue). With her inspired commitment to our goal, we're saving money on energy costs by minimizing use of the car, and avoiding air conditioning usage altogether.

Monthly Summary: May 2008

2008-05-31T13:44:00.004-04:00

The payment we made this month was the 25th of 180 scheduled payments on our 15-year note. It was also the 5th payment since we set our five-year goal.

The balance after all "April" payments were completed was $176,276.47. The total principal amount for May was $3,840.09. This included a $3,000 additional contribution to principal (which is actually the amount from the sale of the car we decided to allocate toward our mortgage balance). Our outstanding balance dropped to $172,436.38.

We're $12,933 ahead of schedule on our payments. The mortgage would be paid off fifteen months early if we ceased extra principal payments after this month.

We saved $49.42 in interest this month. When added to our previous months' savings, I see that we are ahead $133.23 on interest since the beginning of our mortgage-elimination project.

The average monthly principal payment required to meet our five-year goal fell to $3,135.21.

As we move into the summer months, we're expecting to receive some extra income in the near future. This should help us continue to make steady progress toward our ultimate goal.

No Mo' Escrow

2008-05-28T18:29:00.003-04:00

I was discussing our saving plan with a friend over the weekend. He asked if our monthly mortgage payments include a contribution to the escrow account (they do). He suggested that we might be able to remove the escrow portion from the monthly payment amount simply by calling up our lender and asking. This intrigued me, so I did just that. It turns out that since we aren't required to pay PMI, we can drop escrow at any time. The lender just keeps it there for our "convenience".

Last year we paid around $4,000 in property tax. If we can ensure that we have at least $4,000 saved at all time in a special tax reserve fund (and contribute to it monthly), we can earn interest on that money above and beyond the measly rate paid by our lender. Last year we earned about $29 in interest from the escrow balance. If we invest the $4,000 in a money market fund paying a conservative 2.00%, we could earn about $80 per year. This isn't a huge difference, but why leave free money on the table?

Also, each of the past two years we've received an escrow refund at the end of the year because our house's appraised value has fallen with the overall real estate market (and therefore our tax burden was lower than the projected amount). By taking the tax payments into our own hands, we can avoid waiting 12 months for any escrow refund payments to come through. I realize this would work in reverse if house prices were rising, but I don't see that happening in the next few years.

Finally, once we do achieve our goal and are 100% mortgage-free, we'll have to pay taxes on our own anyway. So setting up the tax payment fund now will give us plenty of practice when that day finally comes.

Because of these reasons, I asked the lender to stop including escrow amounts in our monthly payment. They are sending us a check for our current accrued escrow balance. Property taxes are due next month, so I'll be ready in time to make our first tax payment on our own.

Monthly Summary: April 2008

2008-05-23T16:07:00.002-04:00

This "April" summary is over three weeks late, but (as I mentioned previously) I wanted to await the results of making our April payment during the grace period in May. I'm pleased to report that the Mortgage Professor was right; our lender credited the additional principal payment toward April's balance even though I made the payment during the first full week of May. This is not something we expect to do on a regular basis going forward (in fact, we've already scheduled our May payment for next week), but it's nice to know we have that option in case of a similar situation in the future.

The April payment was, by the way, the 24th of 180 scheduled payments on our 15-year mortgage.

At the beginning of April, the outstanding balance was $179,102.43. We made a $2,000 extra principal payment, which when added to the principal portion of our regular payment resulted in a total principal payment of $2,825.96. Our outstanding balance dropped to $176,276.47.

We're around $9,884 ahead of where we'd be if we'd never made any additional principal payments. If we ceased making extra payments at this point, we'd pay off the mortgage exactly one year early. This part really impresses me. We've been paying extra for about four months, and that extra principal only amounted to 4.8% of the original loan balance, but we've already taken a whole year off of our term thanks to future compounding interest savings.

We saved $39.23 in interest this month, for a total of $83.81 saved interest so far.

Our average monthly principal payment required to meet the five-year goal is now $3,147.79 (up slightly from last month).

May's payment will include the proceeds from our recent car sale. I am looking forward to wrapping up this month already!

Sold!

2008-05-20T22:52:00.004-04:00

We are now OFFICIALLY a one-car family. Our second car sold yesterday. The buyers paid a little less than we were asking, but they did bring cash, and after a brief inspection of the interior and under the hood, they handed over $6,000 and left with the keys and the title. One one hand, it is a little scary to have only one vehicle between us, but on the other hand, we've been living the one-car lifestyle since February 1 of this year, so we feel that we're now ready to do it for real.

In addition to the sale proceeds, we expect to realize some significant savings over the next year by eliminating the second car from our lives:

I canceled the auto insurance on the car we just sold. This will save us almost $75 per month, or almost $900 per year.
In 2007 we spent $175 to register the car. We won't have this annual expense going forward.
We no longer have to pay for maintenance on the second car. At the very least, we avoid minimal routine maintenance. This might include four annual oil changes at $30 each, plus an annual tire rotation for another $30, and an inspection for another $30, to bring the total to $180. But our car was nearing 140,000 miles when we sold it, so it's likely that we would have paid for more expensive repairs in the future. And we don't have to pay for other minor maintenance like replacement wiper blades, washer fluid, air filters, and so on. My records show we paid a total of $2,250 for maintenance on both vehicles last year, so it's safe to assume that half of that cost ($1,125) could reasonably be applied to the car we just sold. I think this is a conservative estimate.
It's no coincidence that the vehicle we parted with was less fuel-efficient than the one we kept. Going forward, we should get better economy out of the gasoline we buy, especially if we continue to take more trips in the car together (as we've been doing for the past several months). It's hard to put a value on the fuel savings, but I don't expect it to be insignificant.

Total savings: Approximately $2,200 per year, plus the unknown savings from more efficient gasoline consumption.

Ordinarily my commute to work is about 8 miles (by bicycle or car), but today I was asked to go to an alternate office location in Boston. My company will pay for me to take a bus on those occasions, and I take advantage of that benefit. I woke up to a perfect spring morning here in New Hampshire, so I walked the two miles to the bus stop. I moved along at a casual pace, and made the trip in under 40 minutes, including the time I took to stop at the bank to deposit the cash from the car sale. I took the route through the park, listening to the bird calls and watching the flowers swaying in the breeze, and didn't miss the car at all.

As for the $6,000 sale proceeds: my wife and I decided yesterday that we would add $3,000 to our emergency savings, and use the other $3,000 to pay down the mortgage balance by the end of this month. That will put us back on track for our normal mortgage payment schedule, so the $1,000 planned additional principal payment I discussed in my last entry will be held back until June's mortgage payment.

We are masters of our own destiny.

We are on track to achieve our goal.

We will succeed because we are following through on our plan.

Not Very Stimulating

2008-05-18T23:03:00.004-04:00

I was expecting to receive our stimulus payment by May 16 based on this payment schedule, but for some reason it hasn't arrived yet. According to everything I've read, we should have been eligible for the direct deposit because we filed our tax return on time (in March), didn't exceed the income limit for joint filers, and had our tax bill paid by direct debit (which went out in early April). Of course, the IRS website has a disclaimer stating that "A small percentage of tax returns will require additional time to process and to compute a stimulus payment amount." Either we're part of that small percentage, or else we're getting the payment via paper check for some reason that isn't clear to me.

In either case, I've had to modify the budget for the next few months to exclude the stimulus payment. For now I'm going to assume we should have it by July if we are due a paper check. I'll keep monitoring the payment status using this page for the next few weeks, and may resort to calling the IRS if I don't get any answers. Until we receive it, I'm not counting on the stimulus payment for anything. If and when it arrives, we'll use it to pay down our mortgage balance. I am earmarking only $1,000 for our next extra principal payment as a result of the delayed receipt (previously I had been targeting at least an extra $2,000 per month).

We had some inquiries about the car this week, but it's still sitting in our garage. It's nice that we aren't in a hurry to sell, because we don't have to take lowball offers or feel pressured to work with unreasonable buyers. I'm still confident we'll find the right person to take it off our hands in the near future.

I still haven't received the final figures from our April mortgage payment to determine whether the extra principal was applied to April or May. I hope to know by this time next weekend. By then it will be almost time to make the May payment, and I want to have the right numbers in place on my spreadsheet. Yes, I am a big nerd.

Last week I changed the tube on the rear wheel of my bicycle because it had caught a small nail and was slowly leaking. Just like last time, the internet saved the day. There are a bunch of good how-to videos on sites like YouTube covering all sorts of bicycle maintenance. Although it took a bit more effort than a front tire replacement because of the chain and gears, I'm pleased to report another "do-it-ourselves" success (the wife helped out this time). Total cost of the replacement was about $4 for the new tube. I saved the old tube and plan to buy some patches at some point so that we can always have a backup (patched) tube on hand for future flats.

May is turning out to be an expensive month after all. We had a big vet bill for our dogs' annual checkup, including shots and medicine. I hope we can cut back our spending in June, because we're going on vacation in July and will be spending more for gasoline and related travel expenses.

A Little Extra

2008-05-11T17:14:00.007-04:00

Last week my wife received a modest pay raise at work. Although the timing was something of a surprise, we had been expecting the raise to happen at some point in the spring or summer. The raise was retroactive, so in addition to seeing a little extra in each paycheck, she also got a lump-sum payment last week to cover the months that have already elapsed since the effective date of the pay increase.

Because we didn't know when the raise would occur, I had never budgeted for it. The retroactive income will help us get back on track with our mortgage prepayment plan (not that we were all that far behind anyway).

This month we also benefited from a decrease in our auto insurance premium. The monthly payment going forward will be about $25 less than it was before. Add my wife's additional salary to that, and we'll net an extra $175 or so per month. While that's not a huge amount, it's certainly better than seeing $175 added to our monthly expenses.

On top of all of that, we have been using less gasoline since spring arrived, further cutting our expenses. Even though the cost of gasoline is much higher now than it was a year ago, we spent 47% less on gasoline in April 2008 than we did in April 2007. How did we manage to do that? I've used my bicycle to get to work almost every day since the last week of March, and my wife has commuted by bicycle regularly as well (several days per week). We're now living the lifestyle of a one-car family. Our second car is cleaned and parked in our garage, awaiting its sale. It is only a matter of time before we find the right buyer, and we can be rid of the costs associated with owning a second vehicle.

Our April mortgage payment went through last week, along with an additional principal amount of $2000. I won't know whether the additional principal was applied to April or May until I get the next statement from the lender. I'll post the April summary once I learn the answer to that question. For now, I've updated the Progress to Date section assuming the principal was applied to April.

Catching Up

2008-05-04T10:20:00.003-04:00

I haven't yet posted the Monthly Summary for April because we still haven't closed the books on April. As I mentioned in several previous entries, our April spending was much higher than normal due to several (hopefully) one-time charges, including the tax bill and the cost of car repair. [By the way, we ultimately decided to have the mechanic replace the side mirror, as I wasn't prepared to learn how to do that work myself in such a short amount of time.] The original plan was to skip the extra principal payment for April, resuming the attack on the mortgage in May. However, not long ago I came across this article by "Mortgage Professor" Jack Guttentag which made me realize there might be another way to avoid missing the extra payment in April.

Even though I've taken the time to learn how mortgage amortization works on my own, this article inspired me to look at the mortgage payoff strategy in a new light. It's brief, but I think Guttentag does an excellent job of detailing the important points.

First, it's interesting to note that there is no penalty for making a payment a few days after its "due date". There is a built-in grace period of 15 days on my mortgage. Each statement indicates that the due date is the first day of the month (for example, May 1), but also includes a second line which states that a late charge will be assessed to payments received on or after the 16th of the month (the end of the grace period). What the statement doesn't explicitly state is that the effective due date is the 15th of each month.
Second, an individual who pays the mortgage bill on the 15th (instead of the first) has given himself/herself "the use of [the monthly payment amount] free of interest for 15 days". This also means that a payment made before the due date (the first of the month) is an interest-free loan to the lender, as the borrower doesn't receive any benefit for making the payment several days early. Unlike the finance charges for credit cards, which accrue on a daily basis, mortgage interest accrues on a monthly basis. A payment on the 2nd is the same as a payment on the 17th, which is the same as a payment on or before the 15th of the following month (made during the grace period).
Third, because interest accrues monthly, it's advantageous to make an extra principal payment for the prior month during the grace period whenever possible, rather than delaying and making the payment for the current calendar month. An extra principal payment made on May 10th will have a greater impact on the overall interest if it's applied to the payment due May 1 instead of the one due on June 1, because that extra month of interest savings will compound throughout the remaining mortgage term.

The one caveat is the way the lender applies extra principal payments received after the due date. As Guttentag explains,

Extra payments that are made later in the month might have the same effect, or might not be credited until the following month, depending on the lender. To be credited within the same month, extra payments have to be received before the Nth day of the month, but N varies from one lender to another.

I don't know with certainty what N is for my lender. I'll admit I don't feel like calling customer service and asking for clarification of the policy. I'm going to learn this one through trial and error by studying the next statement they send us. I'm guessing that they will treat extra principal payments the same way as the regular monthly payments, but that is only a guess at this point. Right now, I plan to make the "April" mortgage payment (normally due May 1) by May 10, including an extra principal payment of $2,000. Waiting the extra time will allow both of us to receive another paycheck from our employers so that we have the cash on hand for the extra principal payment. If the lender ends up just crediting the extra principal for May anyway, then this experiment is over.

So if we didn't have the extra cash on hand to make the additional principal payment in April, and plan to make this up by paying during the grace period in May, then aren't we just setting ourselves up to be one month behind going forward? The answer would be yes if we didn't count on having some extra income in the near future. Thankfully, three sources of additional income are looming on the horizon:

The economic stimulus payment of $1,200 should be arriving in May. While I question the wisdom of increasing the national debt to encourage people to spend money they don't have, I certainly won't be sending this money back to the US Treasury. Note to Congress and the President: My wife and I will not be spending one cent of this "stimulus payment" on anything other than reducing our mortgage balance.
My wife expects to earn some extra income over the summer (June and July) which we aren't budgeting for anything else except paying down the mortgage.
We finally put our second car up for sale. I have no idea how quickly it might sell, or how much we'll end up getting for it, but it's nice to know that we'll have an extra chunk of change coming to us in the near future which we can use to catch back up on our payment schedule. Even if it sells for a trivial amount, we'll be able to drop the insurance for that car once it's gone, and we won't need to pay for registration, inspection, and further maintenance in 2008. This will free up money each month that we can use for extra principal payments.

Our short-term goal is to use the three sources of extra income above to get back on a schedule of paying the mortgage by the due date each month. It's nice to know the 15-day grace period exists in times like this, but I don't want to rely on it each and every month. We're already debt-free aside from our mortgage, so I don't want us to feel like we're struggling financially all the time.

For the first time in a long time I've actually created a spending plan (some might call it a detailed budget) for April-July to ensure that we stay on track and don't miss any important payments. If it ends up being helpful, I may extend it beyond July. It's amazing how debt reduction requires nothing more than sticking to a spending plan involving only grade-school arithmetic (addition, subtraction, multiplication, and division).

By the way, at the end of the amortization article there are links to spreadsheets which Guttentag has created to help calculate the effect of extra principal payments on the overall mortgage balance over time. His fixed-rate mortgage calculator is applicable to our loan. I'm pleased to report that my own self-created spreadsheet agrees with his calculations, but mine takes it a step further. I have two amortization schedules laid out side-by side. The left-hand schedule shows the standard mortgage amortization without any extra payments. The right-hand schedule tracks our actual progress, including all the extra payments we've made to date. I then compare the current numbers to the standard schedule to calculate our interest savings over time, and our progress ahead of schedule. [At some point I still hope to make my spreadsheet available for download, but I need to take some time to make it more generic, and able to handle scenarios other than my own.]

Defining Retirement

2008-04-16T23:07:00.002-04:00

I read an interesting article recently which illustrates the power of compounding over time. While the math is sound, I don't buy into one of the author's principal assumptions. That's his assumption that retirement begins at the arbitrary age of 67. This is the full retirement age for recipients of US Social Security Retirement benefits who were born after January 1, 1960, but it's still an arbitrary number.

Working until age 67 may be acceptable to some, but not for my wife and me. Our goal is to transition to a retirement lifestyle as soon as possible. Our assault on our mortgage debt is the main component of reaching this goal.

So how do we define a retirement lifestyle? The main asset that retirees have, and which the employed population lacks, is time. Retired individuals can set their own schedule. They can be as active or inactive as they want (depending on their health). They can even go to work if it suits them. But they don't have to work if they choose not to. This control over time is, to me, the key element of retirement.

As I write this, my wife and I don't have full control over our time. Our employers expect us to give our time to them in exchange for our salaries. Most everything we do is based on a schedule that is set by someone else: office hours, school calendars, company holidays, late meetings, mandatory overtime. Furthermore, a significant part of our "free time" is spent preparing for work. We don't have much free time that isn't already committed to sleeping, eating, or caring for ourselves.

And so, we continue to work, exchanging our time for pay. Now that we have a goal (pay off the mortgage in five years or less) and a plan (reduce spending and maximize additional principal payments), we see work in a new light. Instead of exchanging our time solely for money, we're exchanging today's work time for future free time. Every month I work full-time in 2008 represents a month I can work part-time in 2013, perhaps, and another month I can go without working at all, maybe in 2018. This gives more purpose to the daily grind. I'm not working to make my employer happy...I'm working so that I can shift control of my time from my employer to myself.

Fortunately, my wife and I have been good "retirement" savers, and find ourselves in a position to best the hypothetical return of the 26-year-old described in the article, assuming (yes, another assumption) that our investments match the author's proposed 10% average annual return. Unfortunately, that money will remain off limits until one of us is at least 59½ years old, unless we want to pay a penalty (probably not) or the laws governing retirement accounts get changed (plausible, but not likely). So our next challenge will be to find a way to bridge the gap between freedom from mortgage debt and complete freedom from employment. However, we are still a few years away from meeting that new challenge. I think it's best to focus on one goal at a time.

First things first! Death to the Mortgage.

Do It Myself

2008-04-07T22:13:00.002-04:00

As we prepare to sell our car, I've been trying to do a better job of keeping our bicycles tuned up and in good operating order. I haven't had a lot of experience with mechanical things, so something as straightforward as bicycle maintenance was a bit of a mystery to me at first. Thankfully, there are a lot of How To guides online. One video in particular came in handy recently, after I got frustrated while inflating one of the bicycle tires. I had difficulty removing the pump nozzle on completion, and managed to tear the valve away from the innertube, instantly flattening the tire.

This is something that the "old me" would have fixed by driving the bike down to the bicycle shop and paying the service department to fix the flat (and while they were at it, maybe do two or three other unnecessary things). But the "new, improved, more focused, and goal-oriented me" decided to limit myself to the purchase of $6 worth of repair parts and learn how to replace the flat tube myself. I'm pleased to report that the experiment was a success, and the bicycle rides great on its new, fully-inflated innertube.

I know this was not a major task, but to me it represents a significant achievement, because I managed to learn something new which I can use again in the future. As we continue to attack our debt, I hope both of us can acquire skills like this, so we can save on the cost of other people's labor. The $6 probably represented a small fraction of the repair cost had I taken it into the shop.

Unfortunately, we had another mishap over the weekend. Someone vandalized our car, which means we now face the choice of either spending $250 to have the auto mechanic replace the broken side mirror, or do without and drive a slightly damaged car for a while. Is this a task we can do on our own? Or does it make more sense to leave this to the professionals? Time for more research.

Monthly Summary: March 2008

2008-03-29T16:04:00.008-04:00

March is almost over. Time to wrap up for the month.

Our March mortgage payment was the 23rd of 180 scheduled payments on the 15-year loan.

At the beginning of the month, our balance was $182,411.84. Our total principal payment of $3,309.41 included a $2,500 extra payment to principal. This reduced the outstanding balance to $179,102.43.

We are now about $7,845 ahead of schedule on the mortgage. If we stopped making any extra principal payments at this point, we would pay off our mortgage 10 months early.

We saved $26.59 in interest this month, for a total interest savings of $44.58 since December 2007.

Since we exceeded the average monthly payment required to meet our five-year goal, the new average principal payment fell slightly to $3,142.15.

April will be a challenging month for us, as I mentioned in the last post. We'll need to keep our focus so that we can stay on track, even if we aren't able to make much progress next month.

Spring Changes

2008-03-24T22:18:00.005-04:00

Although much of New Hampshire remains covered in snow, I was happy to see the First Day of Spring appear on the calendar last Thursday. This change of the seasons will be accompanied by several changes in our lives. Some of these changes will help our mortgage saving plan, while others will be obstacles to our goal.

First, our utility bills should decrease as the temperature rises. Although we are fairly miserly with our home heating (we set the thermostat to 62 degrees F while at home and 55 degrees while away or asleep), our average winter gas bill still typically runs about 700 percent higher than our average summer bill. Increased hot water usage in the winter also contributes to our higher gas bill. Our electricity costs rise throughout the winter months, as shorter days mean more hours of electric lighting. There is also an electric component to our heating system which increases our consumption during winter.

Although hotter weather is on the way, we don't typically run our air conditioning at home. New Hampshire does get warm during the summer, but the evenings are usually mild, and any so-called "heat waves" don't tend to linger more than a few days. We try to bring the cool evening air into the house by using window fans at night. Once we get up in the morning, we close the windows to lock in the cool air, and close the blinds or curtains to block the heat on the sunny side of the house. We can seek refuge in the neighborhood pool if the warm weather gets unbearable. The two or three days we actually turned on the air conditioning last summer were a nice treat, but it's quite possible for us to live comfortably at home without relying on it like so many of our neighbors do. Our non-winter electric bills are usually about half the amount of the winter bills. Combined with our decreased demand for natural gas, we should pay $150-$200 less on utilities per month in the near future.

On top of the utility savings, we should see our gasoline consumption decrease in the coming months. I started riding my bicycle to work last summer, and I hope to ride more regularly this year now that I have more experience commuting by human power. My wife can also bike to work on occasion. However, she's managed to get a ride from a co-worker on a daily basis for the past two months, so she may continue to share rides instead of commuting by bicycle full-time.

Since we were married, we've been a two-car household. After tracking the cost associated with owning two vehicles (insurance, registration, and maintenance), I realized we could save a lot of money by selling one of the cars. In addition to the reduced cost of ownership, we'd gain some extra income from the sale of the car. The net savings could amount to over $10,000 in the first year, and around $2,000 per year going forward. Because of this, we've been challenging ourselves to live a one-car lifestyle since February 1, 2008. So far, we've managed to consolidate our trips, or arrange alternate transportation when we've needed to get around. Based on this success, we hope to sell the car by the end of April. All that's left to do now is to clean it up, decide on a selling price, and list it.

Our main obstacle to selling the car is uncertainty. Both of our jobs are tenuous right now. While neither of us expects to be without a job in the near future, the right combination of factors could motivate one (or both) of us to look for alternate employment. Because we don't know exactly where a potential new job might take us, we are hesitant to sell the car until the current uncertainty passes. However, since life is nothing if not uncertain, we're never going to have guaranteed job security. For that reason, we are tempted to just "bite the bullet" and sell the car, trusting that we can adapt to anything the future may hold.

The job uncertainty also threatens our mortgage saving plan. If either of us goes without a paycheck for more than a month, we will have no choice but to go back to paying the minimum required mortgage payment until the situation improves.

April is going to be a particularly difficult month for attacking the mortgage. We must pay our tax bill at mid-month. We're also budgeting for another large personal expense that should come due in April. If anything is left over, we will add it onto the regular mortgage payment, but the most likely scenario I foresee is paying the minimum in April, and using the economic stimulus payment (scheduled to arrive in May) to get back on track. The stimulus payment should cover all but a small portion of our April tax bill. However, the timing of the stimulus payment means that April's mortgage payment should be small, while May's mortgage payment has the potential to be much larger than usual.

Taking stock of all the changes, I see the decreased utility costs and gasoline consumption lasting throughout the spring and summer, not picking up again until at least October. Selling the car will be a one-time event, along with the tax bill. The job uncertainty has the potential to linger for a while, but we have a few months of savings on hand in case we need to make employment changes in the near future.

Following up on last week's post, we've had continued success selling items to help reduce our clutter and increase our income. Getting paid for Spring Cleaning is great!

Selling Stuff

2008-03-17T23:33:00.003-04:00

As I wrote in an earlier entry, I have been working on selling the excess stuff that's been cluttering our lives. I had originally started selling on eBay, but discovered half.com after reading about it on Antishay's blog. I'm surprised I didn't stumble on it myself, since it's an eBay site, but I was so focused on their main auction site that I didn't pay any attention to Half. What a pleasant surprise it was, then, when I started listing our stuff on Half -- it immediately started selling.

In less than a week, I've managed to get rid of a bunch of unwanted books, movies, CDs, and video games, netting about $100 so far. I'm amazed that there are so many people out there who want our old stuff. I am pleased that it's all going to others who will get more use from it than we did. I'm also pleased that we get some money from the sales, which we can put toward our expenses.

Of course, we do have some other items that can't be listed on Half because they don't fall into the categories that Half allows. I'll need to go back to eBay or some other site to continue to sell the rest. But after the simplicity of Half, I'm not as excited as the additional work required to create an eBay listing (photographs, descriptions, and so on). Plus, eBay charges a listing fee whether the item sells or not. Half only charges commission on completed sales.

We are slowly building up to sell some higher-priced items in the near future. I'm hoping that the success of the smaller listings (and the accompanying positive feedback) will benefit us when we finally list the more expensive stuff -- stuff that will make a real impact on our bottom line, including the omnipresent mortgage debt.

Purpose

2008-03-10T21:44:00.006-04:00

Lately I've been reading a number of other blogs and websites dedicated to personal finance. While many include paying off the mortgage as an important step in achieving Financial Independence, I haven't discovered more than a handful which list "eliminating the mortgage" as the main goal. After reflecting on this for a while, I realized that this blog isn't really just about paying the mortgage either, despite the name I selected. Death to the Mortgage is the means to an end, not the end itself.

So what is that end? What is it that my wife and I hope to achieve by eliminating our last remaining debt? In my mind, we're looking for more flexibility to live our lives according to our own priorities -- not the priorities of our creditors or our employers. Right now, we're stuck with an obligation to pay a large sum to the bank every month for more than a decade. In order to do this, we have to spend the best part of our days away from the house, away from each other, doing tasks that would not ordinarily hold our interest for such a long duration. We're expected to do this without fail, day after day, week after week, year after year, so that we can meet our obligation to the bank. That obligation is far and away our largest monthly expense. Without the steady income from our jobs, we'd have trouble making the mortgage payment for more than a month or two. So in effect we are stuck working at our jobs so that we can pay the mortgage. Although this is an oversimplification, it illustrates the source of my frustration. We've allowed the terms of our mortgage dictate our need to work, and because we have to work, our employers dictate how we spend our time.

None of this makes us special. Untold numbers of others have the same arrangement. It seems to be the path of least resistance for all the homeowners we've ever known. I'm not saying that the bank duped us into taking on a debt that we didn't understand. We knew what we were getting into when we signed for the loan and moved into the house. Now that we've been playing by the rules for a while, though, we realized that we don't want to live this life anymore. We're taking action to take back our freedom.

Some people truly enjoy waking up every day and going to work. This gives them a sense of purpose, of belonging, of accomplishment. I find those people fascinating. I am not one of those people. I would be perfectly happy to fill every day with projects of my choosing. I don't think I'm unusual, either. If we're lucky, each of us has seven to nine decades to spend on this earth. Why should we have to spend six of them (two in school, and other four working and paying taxes) working for the future, only to come out old and tired in the end? I want more than four weeks of vacation every year. I want to have the freedom to stay home on the first gloriously warm day of spring, and not feel like I'm shirking my responsibility to others. I want to be able to take six months out of my life and hike the Appalachian Trail. I want to be able to choose to work or not work on my own terms, rather than remain trapped behind a desk in order to make ends meet. I want to be able to spend the prime of my life focusing my thoughts and energy and desires into stimulating, meaningful pursuits, whether or not they make me rich or create jobs or contribute to the Gross National Product.

I don't feel lazy or selfish for wanting this for my wife and myself; in fact, I feel enlightened knowing that we have a choice in shaping our future. We're choosing to sacrifice now so that we have more flexibility in the future. Others have the same options, but choose a different path. We've told our friends and family about our plan. Some tell us it's a good idea, but "not for them" because of the choices they've made. In the end it comes down to a choice. We can buy now and pay later, or pay now and play later. I'm looking forward to playing.

I feel like Andy Dufresne, chipping away at the cell wall of debt with our little rock hammer of extra principal payments, scattering interest savings out in the prison yard, and preparing for the ultimate break out of the Shawshank mortgage in the not-too-distant future.

So what, then is our Zihuatanejo? I like to imagine us living modestly, choosing our employment (and unemployment) without concern of layoffs or strikes or unnecessary relocations. Maybe we'll find something we love and try to make it into our own business. Maybe we'll keep working to build up our savings to generate investment income. Maybe we'll move into the woods and live like hermits, rarely seen or heard from. Truthfully, we haven't completely figured out what exactly we'll do at that point, only what we will NOT be doing (living as slaves to The Man). We'll have many more options without debt holding us back. I'm confident we'll make the right choice when that time comes.

Our Attitudes about Debt

2008-03-03T22:06:00.004-05:00

Time for a little bit more background information about my wife and me. By some amazing stroke of luck, I was fortunate enough to meet a woman who eschews debt as much as I do. At the time of our marriage, neither of us carried any debt, with the exception of the mortgage I had on my previous residence. As I've mentioned before, we are not wealthy, but we have been disciplined enough in our spending that we've been able to avoid purchases which would have required us to borrow from lenders.

When I bought my first home, one of the initial changes I made was to replace the carpeting throughout the interior. I didn't have enough cash on hand to cover the bill, so I signed up for one of those "No Interest for One Year" promotions that the big home improvement stores offer periodically. I made a habit of setting some money aside each month in a savings account, making sure that I wouldn't fall short on the due date (as anything less than a 100% payment of the outstanding balance would trigger back interest on the entire amount). However, I would get irritated each time I received a monthly statement showing the outstanding balance. Finally, I couldn't take it any more and scraped together enough extra cash to get rid of the loan before the year was up. Even that relatively small debt (the total loan amount was, I believe, around $2200) drove me crazy. Since then, I've avoided debt traps like that, instead opting to save up in advance, or (more commonly) foregoing the purchase altogether.

It was a great feeling when we paid off the HELOC (second mortgage) in December 2007. That was an adjustable loan with a higher interest rate than our main mortgage. I realized that it made no sense for us to pay additional principal to the main mortgage until the HELOC was gone, because it was more expensive to pay the interest on the second mortgage each month. I could not imagine trying to juggle additional loans on top of that. I have a great amount of respect for others who are working to eliminate all of their debts (including credit cards, car loans, and student loans) in addition to their mortgages. That must feel like a more daunting task, requiring more discipline and focus than tackling a mortgage alone.

I'm very thankful that my wife and I have been fortunate enough to find ourselves in our present financial situation. I believe a combination of luck, discipline, and a supportive environment of family and friends have enabled us to get this far already.

We both come from families who understood the value of money, and taught us the basics of saving, spending, and using debt and credit judiciously.
We both have generous parents who started planning early to fund our education, and paid the majority of our education expenses. They also taught us how to be good students, which meant we received some aid in the form of scholarships. Because of these two factors, we had no need to take out student loans.
We both purchased reasonably priced automobiles, and independently managed to pay off our auto loans early, before we met each other.
We both use credit cards as our primary method of making purchases, but have the discipline to limit spending to a strict budget, and pay the balances in full each month. Neither of us has carried a balance on our credit cards for years.
I was fortunate to buy a condo during favorable market conditions during the early 2000s and sell it at a profit when we purchased our current home. This allowed us to make a larger down payment on our house than we would have been able to save up on our own.
We have both been fortunate enough to find ourselves in good health, though we are still relatively young. The few issues we have had have been relatively minor, and primarily covered through our employer-sponsored health insurance.
I was fortunate to get a job with a financial services company after graduation which taught me good investing and saving habits.
We both work and contribute income to the household each month, which allows us to reduce our debt more aggressively than a single income would.
We both share the common goal of eliminating all debt from our lives so that we can make future choices without feeling tied to a monthly mortgage payment.

Lately I have been wishing we had started this plan earlier, so that we would be even farther down the path than we are already. But patience is part of the plan, and we are determined to succeed.

Monthly Summary: February 2008

2008-02-29T08:24:00.005-05:00

The mortgage payment we made in February was the 22nd of 180 scheduled payments on the 15-year loan.

At the beginning of the month, the outstanding balance was $185,207.27. We made a total principal payment of $2,795.43, which included a $2,000 extra principal payment. The ending balance is now $182,411.84.

We are over $5,318 ahead of our scheduled principal balance at this point. Our total interest saved over the life of the mortgage is $18 (this month's savings was $16.50).

The average principal payment required to pay off the mortgage in the remaining 58 months rose slightly from $3,139.11 to $3,145.03. I expect this average number will continue to rise throughout the next two years or so before it starts to fall each month. This should happen as the principal portion of our required monthly payment increases over time.

Here's hoping we can keep this momentum going into March. Spring is not too far off!