How We Paid Off Our 2nd Mortgage in Less Than Three Years

by Kevin on July 22, 2010

I’ve been waiting a little while to announce this. I’m pretty freakin’ excited.

We Paid Off Our 2nd Mortgage!

Yea, we’re kind of stoked! Less than 3 years after we bought our house we’ve paid off that second mortgage that’s been hanging over our heads.

When we bought our house we made a dumb decision. We put 5% down, got a traditional mortgage for 80%, and begrudgingly accepted a second mortgage for the final 15%. Oh, and the second mortgage was at 8.125%. Uhhh, yea. Bad idea. At least it was a 30 year fixed mortgage!

If we had kept the mortgage the entire 30 years we would have paid almost $52,000 in interest. As it is we only paid about $5,500 in extra interest.

It’s been long and it’s been hard, but we finally did it.

Don’t you want to know how?

Three Steps to Paying Off Our Second Mortgage

There were three essential steps we took to pay off our second mortgage so quickly.

1. Living below our means

We live well below our means. Each month we’re able to save approximately 40% of our income for various saving goals. We are very, very blessed to be able to do this.

Until recently one of those goals was paying off our mortgage. So a lot of that money we had free every month was going to pay off the mortgage rather than going in our savings account. We started off with small extra payments, but then switched to taking big chunks out of the mortgage.

It was quite satisfying seeing the loan amount drop, and drop, and drop…

2. Increased our income

I mentioned we were saving around 40% of our income from our regular jobs every month. That’s all well and good, but there are two ways to improve your final situation. Spend less and earn more. We were spending less. It was time to earn more.

I started blogging here in 2008. While I wasn’t earning enough money to quit my day job (not by a long shot) I did start pulling in a couple hundred of bucks here and there.

A majority of that money went to the mortgage which along with our budgeted extra payment really started to kick things into high gear.

3. Kept intense focus

There were a few times during this process that I wanted to pause our extra payments.

I would get nervous — would the money be better off sitting in a savings account, couldn’t we use it to buy ourselves something nice, etc. All the typical garbage you tell yourself in order to make poor money decisions.

I would say my wife had these feelings occasionally, too, but I honestly don’t think it was often as I did. (Perhaps because I look at our budget a lot more than she does. I’m the nerd. She’s the free spirit.)

Thankfully we never landed on the “let’s go blow money!” mentality at the same time. The other person (my wife) was always able to interject and remind me that we were on course and there was no good reason to deviate from that course.

Was Investing a Better Choice?

Maybe there’s someone out there that thinks that even at 8.125% we would be better served investing that extra money. The whole “but you get a mortgage tax deduction!” crowd.

Well stick around. Next time I’ll show you what would have happened to our cash had we invested it in the stock market rather than paying our second mortgage down.

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