I’m writing this on Tuesday (one day before the post publishes), and today, something magical happened for the first time ever.
Today, we woke up in a house that is completely ours.
We knew this moment would come, though it is here sooner than we could ever have imagined. Five years, four months, two weeks and two days after taking on our mortgage, that mortgage is suddenly gone.
It’s a weird feeling, knowing that this roof above our heads, this floor beneath our feet, all the wiring and insulation (and who knows, maybe dead mice?) inside the walls, every bit of it belongs to us. It’s kind of a terrifying thought, actually, but it feels amazing too. (And, not gonna lie — I’ve never felt so instantly grateful to have homeowners insurance, maybe because for the first time we’re truly homeowners. This is now our single greatest asset by a long shot.)
Our monthly expenses have just plummeted by almost half, our savings rate is about to hit truly absurd levels, and we never have to worry again about whether we’ll be able to provide shelter for ourselves. I’m not sure it has all sunk in yet, but while we wait for that to happen (and while we repeatedly pinch ourselves and feel huge waves of gratitude that this was even possible), let’s bid adieu today to our mortgage.
Why We Paid It Off
Our very first big comment post was a lively debate on paying off the house vs. investing that money instead. And certainly most people naturally lean one way or the other. For those who don’t mind debt or even think of it as leverage to use to their advantage, it’s a no-brainer to pay a low-rate mortgage on time and invest as much as possible instead. On paper, this is a smart way to go the majority of the time, unless you’re unlucky enough to be making that choice right before an extended bear market.
But for those who hate debt (Oooh! Oooh! Me me me!!), it’s a no-brainer to pay off the mortgage as fast as possible. That interest we’re no longer paying is a guaranteed return, while there’s nothing guaranteed about market investments. And try getting a guaranteed return of 3.75 percent anywhere right now… outside of a mortgage, there’s nowhere that’s gonna happen. Plus, as I like to say: You can’t put a price tag on peace of mind.
At the end of last year, we were debating putting our year-end bonus excess into investments instead of paying off the mortgage, but ultimately the coin flip went this way, and we’re totally happy about it.
We’ve always said we wanted to have a permanent home base in retirement, even when we’re traveling a lot, and for us that meant having the house paid off before we pull the plug by the end of this year. Not everyone wants that home base or wants to own property, and we totally get that. But this felt like the right approach for us.
Actually Paying Off the Mortgage
It turns out that the act of paying off our mortgage was both annoying and surprisingly easy. Here’s how it happened:
In December, after deciding that we’d pay off the house instead of investing our year-end funds, we logged into our mortgage servicer site (that would be Ocwen, the worst servicer in the world — seriously consider refinancing if your lender tells you that Ocwen will be servicing your loan). We saw what our balance was, said, “Great, let’s pay that,” and tried to put in the payment amount.
No dice. The computer kindly told us that some official federal rules prohibit us from paying off a mortgage online. (Maybe it’s to do with money laundering? Or it’s to force you to give the banks a few more days to charge you interest? I’m guessing the latter, but didn’t look up the actual reason.) Instead, we could pay off 80 percent of the balance online, and then would have to request a payoff quote and wire transfer the balance. (Why we were able to pay a fairly huge amount online yet had to wire a comparatively small amount is beyond me, but Ocwen’s answer: “Them’s the rules.”)
At this point it was near the end of December, and we decided that we’d just push through the 80 percent payment online, let our normal January 1 payment credit, and then request our payoff quote. We received that quote late last week, and on Monday, I called USAA (our bank whom we love to pieces, BUT they are also the lender who sold our loan to GMAC, which folded, landing our mortgage with Ocwen, the worst servicer in the world. Have I mentioned they are the worst servicer in the world? The. Worst.). It took about five minutes on the phone with USAA to push the wire through, they confirmed for me on the phone that the money had credited into the Wells Fargo account Ocwen uses, and then I figured it would take a few days for the payment to credit with Ocwen.
Nope! It credited with Ocwen within the hour, which I know because we both started obsessively refreshing, even though we said we wouldn’t do that. But when the magical “$0.00” popped up, we both got big, stupid grins on our faces and our eyes got big and crazy.
We had really done it. We had paid off our house in just over five years.
More importantly, we had just bought our freedom in a more real way than anything we’ve done so far. Though hitting basic financial independence last year was a bigger milestone on paper, this was the first time we could really look at something and think, “This is ours, even if times get tough.” No matter what the markets do — even if they crash tomorrow — we’ll have this house. And if a natural disaster knocks down this house, then our insurance will build us a new one that we’ll own instead.
A Few More Follow-Ups
Turns out when you pay off your mortgage, you’re not totally done dealing with all that lender and paperwork stuff. There are three main tasks that we still have to complete:
- Get the lender to release the lien on the house with the county recorder. (Thanks to Vicki for flagging this for us!) This isn’t urgent, and they should do it on their own, but should something happen to our house, we won’t want to have to have a lender standing between us and an insurance check. It’s possible we might have to pay a county clerk fee for this to be rerecorded properly — that appears to be locality-specific.
- Get our property tax bill redirected to us. The thing I’ll miss most about the mortgage is the escrow account. I love not having to worry about paying property taxes, but the trade-off for not wanting a mortgage anymore is we get to pay that bill ourselves now. We have a bill due fairly shortly, so we will reach out to the county tax office and make sure Ocwen (the worst!) refunds our escrow balance in a hurry.
- Remove the lender’s name from our insurance documents. Right now our insurance documents show the original lender as the owner of the home, and we’ve essentially been buying their insurance for them. So nice of us, right? But now that we’re insuring ourselves, we need to get that all cleared up. We’ve also heard that we can get a higher deductible now that we own the home free and clear, so we’ll be investigating whether that’s a good trade-off.
What This Means for our Finances
While we expect to feel some sparkly feelings for a good long time whenever we think about paying off the mortgage, the most exciting near term implication is what this does to our savings rate.
We thought we wouldn’t be able to pay it off in full until the second half of January, or maybe even first half of February, but with an official payoff date of January 9, we can still make our full mid-month Vanguard transfer this month. Wohoo! Then starting in February, we’ll be able to put almost as much into Vanguard on the first of the month as we do mid-month, which still feels like crazy talk, but will get real in a few short weeks.
Here’s the stat: paying off the house will let us increase our monthly saving and investing by nearly 50 percent. :::insert eyes popping out of head cartoon here:::
And, it means that my retention bonus in the summer, and any full bonuses we get at year end, or prorated or retirement bonuses we get if we quit earlier than year end, all of that stuff can go straight into investments and our cash buffer accounts. Not a penny has to go against the house. Even if we have a completely underwhelming year at work, we should have no trouble reaching our stretch goals for this year.
We still have the mortgage on our rental property, and we currently have no plans to pay that one off faster than planned, so we aren’t going to call ourselves debt-free. But with that last payment we feel meaningfully free in a way that’s entirely new to us. It feels like a new tailwind pushing us forward in our already semi-charmed lives, getting us ever closer to our goal of full financial freedom in a few short months.
Share Your Thoughts!
As always, we love hearing from you in the comments! Do you think we did the right thing, or should we have sunk that money into our investments instead? Anyone else paid off a big debt recently that you want to call out? We’d love to send a virtual high five your way! Any unexpected lessons when you paid off a mortgage that you can share with all of us? Let’s talk about it all in the comments!
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Categories: gearing up