Have you ever heard the saying “who has no debts is rich”?
Do you remember the last time you had no financial obligations at all? You were probably still a kid living with your parents. You were dreaming of the time when you would finally own your own house, thinking that you could finally rule your life the way you always ever wanted.
But the reality is that the bank is probably worse than your parents were! Your boss is also probably worse than they were. Try to miss a payment or two on your mortgage or try to miss a couple of days at your job and you’ll see what’s going to happen!
I want to retire early living off my dividend income. But I won’t retire with a mortgage. It would be too risky! So I need to clear it all off before I can be free as a bird!
By 2020, if everything goes as planned, I will be mortgage free and that’s something I will celebrate!!!
Here’s how :
Choose the right partner to reach financial independence!
I have realized over the last ten years that a strong couple is like a strong business. All partners must have the same views on core subjects like finance, how to raise the kids, where to live…
My ex-girlfriend was kind of jet set on the sides. We always had to go to the best and most expensive restaurants, buy new clothes from the greatest brands… Life was expensive with her… She was super pretty but… For someone who would like to live on a 1 acre small farm and who would like to retire by 45, it maybe was not the right girl to date…
I now have the perfect partner in life… No! It’s not a dog… 😉 It’s not my guy best friend neither. It’s a wonderful woman who shares the exact same passions and goals than mine! And this can, as a bonus, help me reach retirement a lot earlier than I thought!
Don’t underestimate the power of having the right partner in whatever project you have! It’s really amazing the difference it can make.
Take the shortest amortization possible!
When I first bought my house, I treated my mortgage like a rent. I thought that anyway, houses were so expensive that it would probably take all my life to pay for it. Actually I considered that the bank was the owner and that I was the tenant… The only difference was that I had to cut the grass and handle the repairs!
So, I signed for a 30 years amortization… Big mistake! My payments were reasonable and my job was quite unsafe so I thought it was the good thing to do. To be sure I wouldn’t change my mind my professional mortgage broker highly suggested that I should sign for a 5 years term with an insurance company with almost no way out to get a 0,10% discount on my mortgage rate vs what a bank would have offered me.
I thought it was a good plan and that he knew what he was doing. So I signed for a 5,25% 5 years fixed rate with a 30 years amortization in 2008… Just before the crash!
I didn’t know at that time that there would be such a crisis in 2008 and that mortgage rates would drop that low! While my colleagues were signing for rates at 0,65%, I was stucked with my 5,25% rate. The penalty was way too high to break my contract…
At least I have learned from my costly mistake. I had my renewal a couple of months ago. I signed for a 2.99% fixed rate and I decided to profit of that low rate to get rid of my mortgage. Not that bad of an idea!
I also dropped my remaining amortization from 25 years to 18 years while keeping almost the same payments.
In fact, I still had a 172,500$ balance. With a 5,25% rate, my payment was 1024,98$ per month on a 25 years amortization. With my new rate, I have been able to keep my payment very close to what they were (1029,12$ per month) while dropping my amortization to 18 years!!!
Imagine the savings : 7 years x 12 months x 1024$ = 86,000$ less!!!
But the rates won’t stay at 2,99% forever, so I though I should do more than just decrease my amortization.
Don’t pay per month!
I used to pay per month. It was convenient. The first of each month, the mortgage was subtracted from my account, like a rent! But you pay a lot more interests on your loan when you do that.
My paycheck is deposited every two weeks. So i decided to pay my mortgage every two weeks on an accelerated schedule.
By paying two times per month my payments became 514,56$ every two weeks. So I get to pay 26 times per year. The result is pretty impressive. With 2 more payments of 514,56$ per year, my amortization just dropped from 18 years to 16 years 2 months!
But, that’s not all.
I thought, look… The stock market is currently pretty expensive and it’s never good to put all your eggs in the same basket. Being mortgage free could help me reach financial independence too. So, I could invest a huge chunk of my money in dividend income stocks and also a huge chunk in reimbursing my mortgage. Without a mortgage, my house will become an interesting asset to own that I could eventually sell to cash out the money. Plus, real estate generally increase in value over the long run. I live in a well situated suburb near one of the biggest city in Canada so unless something very bad happens here, my land should increase in value.
When it was time for me to renew my mortgage contract, I decided to pick a lender who was offering flexibility. I couldn’t take the risk to increase my minimum mortgage payment too much since I know that my current income would be very difficult to replace if somehow I lose my job. So I couldn’t reduce my amortization too much.
Instead, I have found a lender who permits me to double-up my mortgage payment on every scheduled payment if I wish!
Now, if I can sustain that, my remaining amortization is roughly 7 years!
I plan to retire within 10 to 15 years. I want my house to be mortgage free before I do. This strategy will put me on the right track.
Of course, I couldn’t do this without my life partner and lovely wife!
Thanks my dear!
What about you? Do you have a great life partner to help you reach your goal?
Do you plan to retire with a mortgage?
[author] [author_image timthumb=’on’]http://quityourdayjob101.com/wp-content/uploads/2014/03/ID-10050051.jpg[/author_image] [author_info]Hi, my name is Allan. I’m the masked blogger. Like you I’m a modern slave, prisoner of a 9@5 job in Corporate America. They told us when we were young that we would live in a society of leisure and that technology would permit us to work only a couple of hours per day. But we live in a society of stress and uncertainty. My situation could be a lot worse and I know it. So many humans are suffering on this planet. But a golden cage remains a cage anyways. At least, I have an escape plan. I will retire before 45 years old over my passive income. This is a dream that is so powerful that I will make sure it happens. To build my wealth, I mainly invest in undervalued dividend growth stocks. [/author_info] [/author]
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