How to Pay Off Three Mortgages Before Retirement
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Paying off Mortgage Debt Quicker while Building Wealth
Growing up being rich was a pipe dream.
We were often reminded that we weren’t worth anything from family members, teachers, and other professionals. It’s no wonder that there is an entire generation that truly belief that wealth is not for them. Let alone owning a home or even considering being mortgage debt free.
Although it took us a while to get out “Parked,” my wife and I were able to put our lives into drive and ventured out into uncertain territory. It wasn’t until I was driving in the South of France, that I realized that a boy from South Florida could really change the trajectory of his family.
Prices for homes are going up. The cost of ownership seems further away.
It’s not lost on us that there are inherent privileges for even making it this far in the wealth journey. We chronicle the path to help ensure that others will follow. On the way to Millionaire status, this is another intentional exercise to reap the rewards of tomorrow.
One Mortgage too Many, for now
Turns out, we currently have two mortgages on our books.
The first is a 2 bedroom and 2 bath Condo that I purchased in late 2016 for $132,500. The Bank’s Appraisal unit lists it as $250,000 as of 2021 (comparable to Zillow). With an outstanding balance of $118,950 as of 7.26.21.
The second is a 2 bedroom and 2 bath rental property that my mom and I purchased in early 2018 for $125,000. The Bank’s Appraisal unit lists it as roughly $150,000 as of 2021. With an outstanding balance of $74,250 as of 7.26.21.
Total mortgage debt outstanding so far is $193,200 with an equity float of $206,800. To plan for anything, you have to gather your resources and relevant facts. This includes the current amortization schedule.
What’s an Amortization Schedule?
A mortgage amortization schedule is a complete table of periodic loan payments. It breaks down the principal and interest of each payment until the loan is paid off. One thing to look for is when the payment changes from interest to principal, generally around year 17 for a 30 year cycle.
The last line typically shows the total interest and principal payments for the entire loan. This is when most people usually cry. To beat this amortization game:
- Make Lump sum payments to the principal. Can cut years and thousands of dollars over time.
- Make Biweekly payments instead of the monthly schedule. Sneaking in one extra payment per year can cut as much as 3 years off your payment and thousands of dollars in interest.
- Start with 30-yr mortgage but when the opportunity comes do extra payments or even refinance for 15 years.
| Mortgage | Interest Rate | Mortgage Term | Start Date | End Date | Total Payments | Total Interests |
| Starter Home Converted into Rental Property | 3.375% | 30-yr | Oct 2016 | Oct 2046 | $218,836 | $81,338 |
| Rental Property Buy, Renovated, Rent and Hold | 4.625% | 15-yr | Jan 2018 | Feb 2033 | $130,171 | $36,423 |
| *Forever Home (TBA 2023) Anticipated Price $575,000 | 3.5% | 30-yr | Est. Jan 2023 | Est. Dec 2052 | $929,515 | $354,523 |
| Total | $1,278,522 | $472,284 |
So what’s the plan?
A Million Dollars worth of payments and almost half of million in interest alone, that’s a whole other home. Most traditional paydowns will end up costing your double. Worse yet, many opt to refinance thus expending their mortgage debt free date.
I estimate the true average is a 40-yr home loan.
I’m going to keep it simple. For one, both of the current properties amount to about $2,000 in mortgage and HOA fees. This places our housing costs fall below how most Americans live. One big rule about your living space that people often ignore due to location, luxury and some sick drive to entertain friends and family, is the 25% rule.
No housing cost should ever exceed 25% of your after tax income
While I understand that some areas are prohibitively expenses like NY, California or the DMV, you will still have to adhere to those term less you are house rich and wealth poor.
- You have to prep for the next level. With that being said, my wife and I have the cap space after our Higher Level Max investments to through another $25,000 annually at this debt problem. To do so, we had to get ride of over $80,000 in credit card expenses in 2021. That $25,000 boils down to around $2,085 per month of extra payments.
- The next move is place both homes into the accelerated by monthly payment. While not all banks offer this, it’s a good idea to look into it. For the starter, it would mean a saving of $8,654 and shave of 3 yrs and 6 months. While the rental would be cut by $2,284 and 1 yr and 2 months. Every bit counts.
- Finally, rental income will be used to pay down the next loan. For example, the rental is at near break even. However, when it’s paid off, we can use part of the income to help pay off the Starter Home. When the starter home is paid off we will snowball into the main property.
How will this Net Max Mortgage Amortization Play Out?
In theory, it should work like a charm. Ultimately, this would mean that we make needed repairs to make each unit rental ready and pray to go for descent tenants that don’t trash the spaces.
| Mortgage | Mortgage Term | Start Date | Estimated End Date | New Term | Total Payments | Total Interests |
| Rental Property | 15-yr | Jan 2018 | March 2024 | 6-yr | $80,958 | $5,671 |
| Starter Home | 30-yr | Oct 2016 | Sept 2027 | 11-yr | $134,690 | $18,134 |
| Forever Home (TBA 2023) Anticipated Price $575,000 | 30-yr | Est. Jan 2023 | March 2036 | 13-yr | $646,514 | $146,531 |
| Total | $862,162 | $170,336 |
Takeaways
I don’t know what the future will bring. I do know that hardship is the right of passage.
After tackling credit card debt freedom in 2021, we are pressed to tackle mortgage debt freedom by 2036. My wife and I know it’s hard. However, saving as much as $400,000 is worth the effort to secure a brighter tomorrow.
Again, we know that your situation might be harder or even more difficult to see through the end. Like Plato’s allegory of the cave, there is a way out and it’s closer than you can see. This is what can separate your family from the average. Setting goals and thinking of a plan helps.
There were about Five cardinal rules as it relates to personal finances that I applied after I made my mistakes. Here’s hoping you make new mistakes and teach others.
So what’s next for us after retiring? Teaching others and Building communities.
Jump Start Your Journey with a wealth of opportunities
- Investing $1,500+ per month in M1 Finance Brokerage focused on Growth and Dividend Income that generates at least $2,500 in passive income in 2022. Check out the portfolio in real time. If you like the platform and want to start investing, I have the $50 for $50 referral if you need it – https://m1.finance/SYdqDJ2SyADC.
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- Build out Financial Literacy Workshops – Setting new goals and pushing the community forward.
- Choose to constructively pay down credit card debts in 2021, rental mortgage by 2024, student loans by 2025, 2nd rental mortgage by 2027, and future main home by 2036.
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