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And we finally paid off our second mortgage! (9 years early)

Ok, this was our second attempt at paying off our second mortgage. If you recall, the first attempt resulted in a returned check from the mortgage company, but this time we did it the right way.

Just to recap our debt/mortgage/etc. situation for you all if you haven’t followed this site for the last 4.5 years, we’ve done the following:

  1. Paid off all our credit card debt
  2. Paid off all our car loans. This included any negative equity rolled in from prior car loans. Right now we’re at 2 vehicles: a 2006 Honda Ridgeline and a 2007 MINI Cooper S (oh, I didn’t mention we upgraded from our 2005 MINI Cooper, but it was paid off quickly)
  3. Paid off our student loans, which made us free of consumer debt
  4. Paid off our second mortgage as of this month!

When we bought our house in the D.C. area back in 2004, we had much less income, mediocre credit scores and history and a ton of consumer and student loan debt (over $100,000). But the bank approved us for about $400,000 across 2 loans:

  1. The primary mortgage was 80% of the total home purchase price, is interest-only for 10 years and a fixed interest rate for 5 years. We’re past the 5 year mark, so it’s now variable, based on the 6-month LIBOR, which has brought our rate down from 5.25% to 2.75%, with little chance of jumping up a huge amount in the next 6-12 months based on the rate trending.
  2. The secondary mortgage was the other 20% and was a fixed rate of almost 8%! It was a 15 year balloon payment, due in late 2019, but we paid it off almost 9 years early.

So after learning that we needed to send a certified check to pay off the loan rather than just a regular check like we’ve been doing for 6 years, I called in for a payoff amount, went to the bank to get the check (and rounded up to ensure coverage of any interest in case the mortgage company was slow to process the payment) and then mailed out the payment to the appropriate address (not the normal mortgage payment address).

Last night, I logged in to the mortgage company site to check on the loan and here is what I saw:

So what’s next?

Ok, we have just one piece of debt left, so that means we’re going to pound away at our mortgage until it’s paid off decades early, right? Well, it’s not that simple. The issue is that the loan is only 2.75%, so we’re going to focus more on fully funding our 401k’s and Roth IRAs, filling up our savings accounts for various savings goals such as home repairs, new car (way down the road), and a general emergency fund.

We’ll keep an eye on the trending of interest rates, but right now we’re saving hundreds on interest with the variable rate, but we know it can’t last forever, but we can’t justify the costs associated with refinancing and when the new loan would most definitely be 2-3% higher than our current rate. The more cautious reader would say take advantage of rates now as they will only go up, but in our case, we aren’t positive we’re going to stay in this home forever, so yet another reason to hold off on locking in on a long-term loan with a higher rate.

Anyone else in this boat? How are you handling the risk vs benefits conundrum?

About the author

Clever Dude

11 Comments

  • Congrats! over 100k paid off in 4.5 years, that’s really amazing! Do you mind if we ask what range your income was so we can see how surmountable this obstacle truly was?

    I’m trying to do the same, but at a measly 35k salary…. it’s a long trek.

  • @James, since I do have coworkers (or former coworkers) and neighbors and family reading the site, I won’t give out specifics, but we make well under $200k combined, but well above $100k. Now remember, we’re not in the rural Midwest; we’re in Washington D.C., one of the most expensive cities in the nation.

    However, back when we bought the house, we were making under 6 figures combined and they still approved us for such a large loan. Through hard work, and a bit of luck or God’s grace, depending on how you look at it, I have been able to move up the salary ladder and doubled by initial salary with 6 different jobs in 9 years while still gaining more marketable skills, and my wife has improved her salary by about 1.5x.

    We also had the benefit of earning a decent chunk of change off this site and a few others over 4 years, so that, I think, was the big contributor to paying off our debt very quickly. Plus, it helps to have a frugal (sometimes stingy) wife, but she’s gotten 2 MINI Coopers out of it and she isn’t complaining.

  • Thanks all.

    @Barb, For the IO loan, we pay a little over the minimum payment, but we’re now focusing on restocking our emergency fund and savings goals as well as investment goals. Since the mortgage is a relatively low interest rate, we’re not pushing to pay it off as we’re also not sure how long we’ll be in this house.

  • I’ve been following your site for a few years now. You went from having 3 cars and a bunch of debt to THIS? Wow Clever Dude. Rock on.

    You guys should go on an awesome vacation or something!

    • Thanks Marilyn. We’ve paid off about $200,000 in roughly 6-7 years. No plans to rush through our last debt (mortgage) because we’d like to enjoy our money for a bit (but not go into more debt if we can help it!). And as a matter of fact, we DID just go on a long vacation (to Disney!)

  • I am about to start ploughing back through your archives to find out exactly how you set about doing this. What a fantastic achievement.

    I have a HUGE mortgage to pay off (about 3x yours!) and my interest rate is 6.62% so I want to do it as fast as possible.

    I feel like I’m going into this slightly blind, I have almost no financial education, but I hope to read, read, read and see if I can figure out a way to get myself out of this debt…

  • Congratulations and I think the way that your taking advantage of the low home rate and focusing on your IRA is a smart choice. Especially if you don’t think you will be living in the same place in the up coming years.

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