We’re so excited to share today’s interview. After this, we only have two more interviews to share, and only two more Fridays left in 2015!
This interview is a great example of what a huge impact consistent hard work can have on your finances. In Tamara’s case, it meant paying down a $190k mortgage in just seven years! We’ll let her take it from here and share all the deets of how she and her husband made it happen.
Tell us your story.
Hi! Thank you for letting us invade your space for a moment! My name is Tamara, and my husband and I live in the suburbs of Salt Lake City. We have been married for fourteen years, are in our mid-thirties, and have three children under the age of seven. Our story that we’d like to share on OFB is how we were able to pay off our $190K mortgage in seven years. We aren’t financial experts by any means, but we thought we’d share how we made this happen since it’s been the most significant financial goal we’ve achieved thus far.
My husband and I met and married while we were a bit more than midway through our education at Utah State University. We spent the first two years of our marriage pinching pennies tightly, as we were both going to school full time. We lived like poor church mice and ended up only taking out school loans the last year or two at school.
During this time, our only debt outside of pending school loans was a three-year-old Ford Mustang that my husband bought before we married. This is where we got our first taste in trying to pay off debt quickly by adding extra to the principal payment whenever possible. We applied our meager tax returns to this debt, added extra every month, and were able to pay off this $13K debt in about 18–24 months.
After we both graduated, we were fortunate/blessed/lucky to both start jobs in our chosen fields within the same week. That wasn’t planned and seemed like the stars aligned to make that happen. So we packed up our bags and moved two hours south.
This is where we made a great financial decision for ourselves, living like no one else for the short term so that we could be more financially comfortable in the long term. My cousin generously offered to let us rent a room in her basement for a small amount of rent, $300 a month. It wasn’t a pretty situation, folks. For that $300 a month we got a basement bedroom, a bathroom and a fridge. Oh, and access to their dryer and washing machine that sounded like a Boeing 747 taking off. There was no kitchen and we had to make due with a microwave and occasionally borrowing my cousin’s kitchen to cook a warm meal. I’m not much of a cook anyway, so it was a sacrifice we were able to make for the short term. Our plan was to start saving up for a down payment like crazy people. We spent six months living in my cousin’s basement while we were saving every spare cent of our salaries for a down payment.
That next spring we ultimately ended up buying our first home, a modest-sized rambler with an unfinished basement in a family-friendly suburb for $190K. We were able to scrape together a ten-percent down payment on this house while we lived in this tiny basement bedroom. Our expenses were at a minimum and this allowed us to dedicate the majority of our new incomes towards putting together a down payment.
As first time buyers, we weren’t honestly sure what kind of house payment our incomes could comfortably afford and not feel house poor. These were the days where the amounts people were approved for were REALLY exaggerated and we were skeptical of the numbers they gave us. We were approved for an amount that we thought was ridiculous and ultimately bought a home that was much lower than we were approved. I think that was our second great financial move, choosing a modest home with good bones, with some room to grow and improve but at a price that wasn’t anywhere near the top end of what we could afford.
As the months turned into years, we faced new challenges such as infertility, and we ultimately remained childless for many more years than we were planning on. During this time, we grew comfortable with adding extra onto our new mortgage payment every month… for us that ended being an extra $600 a month that would go towards principal (our mortgage was $900-ish and we typically paid $1500 with the extra going towards principal). When we got a tax return, we applied it to the principal. When we earned a bit of extra income from side jobs, we applied it to the principal. When we received a bit of extra income from the sales of company stock (part of the benefits my husband had) you guessed it… it went towards the principal. I sound like a broken record, but that’s how you pay off your house earlier than planned. It was a mind-numbingly slow process, however.
After about seven years, we had finally worked down our mortgage debt to about $25–$30K. One day my husband’s company was suddenly bought out by a extremely large company. The stock skyrocketed like crazy and its value quadrupled. We sold our company stock quickly, and we ended up with an unexpected windfall just enough to finish paying off our mortgage. I admit that receiving large sums of money like this isn’t the norm for is, and it hasn’t happened since. But applying large sums of money that might come in the form of tax returns, inheritances, selling off a valuable, etc., are great ways to start the ball rolling.
We paid off our first home in 2010 and have not had a house payment since. We are hopeful to move in two or three years, though, since there are a few pesky things that drive us crazy in this house. We hope to keep this house as a rental and use the funds from it to help fund our next home purchase.
So awesome! So what made it possible to pay off your mortgage in only seven years?
Several turn of events made this possible for us.
1. We both chose majors at our local state university that we felt would have a good income potential once we entered the work force. I knew that with my career especially I’d never be raking in the dough, but at least knew I’d have job opportunities at graduation.
2. We tried really, really hard to keep our school loans to a minimum. We also hardly bought anything new while we were students. I drove a car I had paid $2000 cash for. We moved around a lot in college due to internships, so we bought very little furniture. The only items of sizable monetary value that we owned while at school were our vehicles and my wedding ring.
3. We bought a home that was well under (almost half) what we were approved for. I think this was the single biggest factor in being able to pay it off so quickly. Having a low mortgage payment allowed us to routinely add extra every month onto the principal. Housing in Utah is currently much more expensive (more than double, really) than when we bought our first house. We’d really like to upgrade homes, but it’s going to take us a lot longer to save up a down payment for our next and hopefully forever home since having kids and all.
How does it feel to be completely debt free?
Obviously, it’s been great. It was especially helpful once we made the decision for me to stay home with our kids while they were young. While I made a decent income, the costs of putting three kids in daycare combined with my long commute were enough that we decided for me to be a SAHP while the kids are young. I’d love to return to the professional workforce in 2–3 years.
While it has been amazing to have this house paid off, it’s also made us feel much more tied to this house than we would otherwise. Its not the ball-and-chain of debt, but our connection to this house is palpable at times. It’s really, really hard to think of giving up the luxury of not having a mortgage payment.
What do you do with the extra money that used to go toward your mortgage?
Most of the income we used to put towards our mortgage has gone towards home improvements for the house over the past few years. We have replaced flooring, finished the basement, landscaped the backyard, painted, replaced moldings upstairs, upgraded lighting, built a shed, etc. We have done most the work ourselves, but the cost of materials does add up! We are hoping to move to a forever home, but we’d like to put 10–20% down, and it will take a lot longer this next time since housing prices are almost double from when we bought our first house. Plus, now that we have kids, it’s much more difficult to save money in ways that we were willing to before we had children. We have also chosen to switch our focus in building up our retirement savings while we don’t have a mortgage payment.
What budgeting tools (apps, spreadsheets, strategies, etc.) are you using?
Part of the reason I like reading OFB is that they’re much better at breaking down their monthly budget than we are. We tend to prefer the method of allocating our income into different bank accounts for different needs the moment we get that paycheck in our hands. For example, we have a separate savings account that we have money deposited from every paycheck that solely pays for expenses such as life insurance, car insurance, homeowners insurance and property taxes. We know what our typical yearly costs are with these, and we just make sure we have enough deposited from every paycheck to cover those costs. We have separate accounts for savings, and another for our overall monthly spending budget. We also have two individual accounts where we put a small amount of fun money, just a nominal amount that we can each spend on anything we want, no questions asked.
I realize this isn’t always a popular method but we try to put most of our monthly expenses (like gas, clothing, groceries etc) on our credit card that gives us bonus points and we ALWAYS, ALWAYS, ALWAYS pay it off entirely at the end of the month. We then use the rewards points from our credit card to offset airline and hotel costs for a vacation to Hawaii every three years or so. We don’t travel a whole lot and typically stay close to home because we are frugal by nature, but using credit card rewards is a way for us to go on a nice vacation every 2-3 years and not feel like we have to break the bank to do so.
Any final words?
I could spend a lot of time suggesting ways we keep our monthly budget down, but ultimately the number one most effective method for paying off our debt was choosing a house that was very affordable for us. It’s not fancy, but it’s paid for. If you have any questions, let me know and I’ll try to answer them in the comments below.
Thanks so much to Tamara for sharing such an inspiring story of mortgage payoff. Seven years is such an incredible timetable! And you heard the lady! Any questions, fist bumps, or thoughts can be left in the comments below.