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I bought my first house when I was in my early 30s. It was a conventional loan, 20% down, 30 year term, and IIRC 9.5% interest (which was the going rate at the time). After a few years and a few salary increases I started building up savings, far more savings than would be needed for an emergency fund. (It's a good idea to have 6 months take home pay in the bank if you can afford it, in case you lose your job or have some other emergency.)
As it turned out saving interest dropped below my mortgage interest and I started adding a few hundred extra each month, occasionally a thousand extra. After living there about 15 years I noticed my loan balance had dropped to several thousand and I could easily spare that from my savings. I had been saving up for retirement too, in addition to my IRA and 401k, so one day I phoned my lender and asked them what my payoff would be on X date (about a week later), and showed up at their office on that date with a cashier's check, payment in full! It was a real thrill, having no mortgage, no payments, owning my home in full!
It turned out I lived there another 15 years with no house payments, and that allowed me to save even more money! By the time I retired I was able to pay cash for my retirement "dream" home! I haven't paid a house payment in decades!
NICE!
Most people could not do what you did simply because they cannot keep their hands off the money. If they have extra money they spend it and in a short period of time will not be able to tell you where the "extra" money went.
Many of those same people will tell you all about how you should not pay the house off, and lecture us all about return on investment. My step daughter is like that - she gives free advice but usually could not come up with $2,000 without help.
Listener, you wouldn't believe all the hours I worked! In later years I worked even more hours, my record week was 78 billable hours! (I was a consultant, paid by the hour.) Not only that, I always bought my cars new and kept them for 8-12 years on average. Furthermore I didn't take all the expensive vacations so many people take. Yeah I missed out on a lot, but I have a lot to show for it. (I took my vacations camping. That's cheap! And I love the outdoors!)
And yes, it is nice! I also ended up owning rental houses, and sadly I discovered being a landlord is not for me. I'm selling my rentals over the next couple years...
This is how you go about growing wealth. Skip that ROI stuff. You get wealthy by being frugal and managing/investing your money wisely. It's not how much you make. It's how much you keep.
I forgot to add my advice on 15 years vs. 30 years:
Keep in mind that at least for the present mortgage interest is deductible from your income taxes. Due to the effect of declining balance owed you will get the biggest interest deductions in the earliest years. As your balance declines your payments will go less towards interest and more towards paying off the principal.
The practical result of this is that the value of your mortgage interest deduction declines throughout the life of the mortgage. Near the end your interest deduction will be practically nothing. I'm not quite sure what to make of this in terms of paying off your 30 year mortgage in 15 years...
Note also, I think it is better to get a 30 year mortgage and then if you wish pay it off in 15 years. I'm pretty sure that 30 year mortgages get lower interest rates than 15 years. Also, your payments on a 30 year mortgage will be lower than payments on a 15 year mortgage. If you wish, think of it as a 30 year mortgage with a 15 year option.
You can make the same payments on your 30 year mortgage you would have had to pay on your 15 year mortgage and (without doing the math) you'll probably pay it off in less than 15 years (by at least a bit). Not only that but if you have money problems you can quit paying the extra and just pay your regular payments. If you get a 15 year loan you have no option except to pay the full payments.
For a variety of reasons I believe a 30 year loan is always better than a 15 year loan. I can't think of a single reason why a 15 year loan would ever be better. In fact I challenge everybody to find one reason why a 15 would be better than a 30.
The only reason I can think of is if you are the kind of person who can't manage your money and would fritter it away if you weren't forced to pay the 15 year loan payments.
I forgot to add my advice on 15 years vs. 30 years:
Keep in mind that at least for the present mortgage interest is deductible from your income taxes. Due to the effect of declining balance owed you will get the biggest interest deductions in the earliest years. As your balance declines your payments will go less towards interest and more towards paying off the principal.
The practical result of this is that the value of your mortgage interest deduction declines throughout the life of the mortgage. Near the end your interest deduction will be practically nothing. I'm not quite sure what to make of this in terms of paying off your 30 year mortgage in 15 years...
Note also, I think it is better to get a 30 year mortgage and then if you wish pay it off in 15 years. I'm pretty sure that 30 year mortgages get lower interest rates than 15 years. Also, your payments on a 30 year mortgage will be lower than payments on a 15 year mortgage. If you wish, think of it as a 30 year mortgage with a 15 year option.
You can make the same payments on your 30 year mortgage you would have had to pay on your 15 year mortgage and (without doing the math) you'll probably pay it off in less than 15 years (by at least a bit). Not only that but if you have money problems you can quit paying the extra and just pay your regular payments. If you get a 15 year loan you have no option except to pay the full payments.
For a variety of reasons I believe a 30 year loan is always better than a 15 year loan. I can't think of a single reason why a 15 year loan would ever be better. In fact I challenge everybody to find one reason why a 15 would be better than a 30.
The only reason I can think of is if you are the kind of person who can't manage your money and would fritter it away if you weren't forced to pay the 15 year loan payments.
I'm no expert on mortgages, but in my experience, 15 year mortgages almost always have lower interest rates than 30 year mortgages. And 10 year mortgages lower still. And 5 or 7 year ARMs the lowest. Obviously, on the ARMS, they are hoping to fleece you one the term is over and they can raise rates, but it's fine for people who can pay off a house that fast.
Anyway, we are in our 30's and we bought my 3rd and my husband's 1st property together 4 years ago. We will have it paid off in 5-6 more years. We max out our retirement savings, save 10%, AND throw in about an extra 40-50k into our house each year. When it's all said and done, we hope to have it paid off in 10-12 years total from purchase date. We have a 1 year emergency fund that does not include any retirement savings. We don't have car loans. We don't have any other debt except 1 remaining school loan of mine that is almost paid off (it's 1.8%, so I haven't been in a hurry).
We live in a high COL area (NYC area), so it's not super easy, but we try to live below our means. But we, I really mean my husband, because he's the money guy.
We just refinanced to a 7 year ARM. I know it's "risky", but we will absolutely have it paid off by then. Even if something awful happened and we had to sell at a loss, we are more than 50% paid off now, so we could still take our equity and move to a lower COL area. Anyway, we refinanced from a 5 year ARM to a 7 year ARM just recently, and although our rate is higher, we have so much equity now that our overall monthly payment is much lower. We calculated the payments for when the 5 year ARM runs out 1 year from now, and we have a cushion of 4 additional years before the 2% yearly interest rate hikes would even equal current interest rates (our original 5 year ARM was only for 2.3%, so you can't beat that in today's market), but my husband is pretty risk adverse and he wants the extra cushion of 7 years from now just in case of job layoffs, etc. So we are on track to pay off entirely in 5 years and now we have 7 to do it. We were going to refinance to a 15 year because for a few days, the 15 year had great rates, but then suddenly the 7 year ARM dropped and we switched over at the last minute.
This is not a strategy I would recommend for most people, but my husband is very disciplined with money, so he never has trouble spending what he means to put into extra payments.
I'm no expert on mortgages, but in my experience, 15 year mortgages almost always have lower interest rates than 30 year mortgages. And 10 year mortgages lower still. And 5 or 7 year ARMs the lowest. Obviously, on the ARMS, they are hoping to fleece you one the term is over and they can raise rates, but it's fine for people who can pay off a house that fast.
Then it is quite possible that my assumptions are wrong. I am not a mortgage expert. Perhaps the 15 years are cheaper because they get to "fleece" you quicker. I regret if I gave any misinformation.
There are exceptions, but generally speaking when you have a fixed rate mortgage, the shorter the term, the lower the rate.
Adjustable rate mortgages are lower than fixed rate, at least for the initial period where the rate is locked.
My ARM dropped from 5% to 3% when it reached the adjustment phase. It went below 3% for a couple years. I'm put off by the cost of refinancing. By watching the index, I can see when a rate increase is coming, and pay down the balance just enough to keep the payment the same. Last year I paid an extra $2500 on the principal and it lowered the payment a few dollars.
That extra payment reduced my debt by $2500. If I spent that $2500 on REFI fees & costs, it would just be gone.
I heard if you pay an extra payment a month every year, you reduce the length of your mortgage by like 6 years? So a 30-year would become like 24 years?
I guess I should play around with a amortization schedule/calculator to see how many payments I'd need to make to pay off a 30-year mortgage in 15 years.
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I also ended up owning rental houses, and sadly I discovered being a landlord is not for me. I'm selling my rentals over the next couple years...
