Sunday, January 05, 2014

Mortgage Payoff Challenge - Starts 1/1/2014

So, with a ton of time behind me on this blog I have decided that it is time to finally take the last plunge toward becoming debt free in 5 years. I know that this is not a terribly new idea in terms of personal finance but I think that it is a good thing to think about and a good goal to have.

At this time, I continue to have a car payment which is a result of driving my old toyota corolla for about 10 years and then finally junking it this past summer at about 180K miles when the A/C stopped working and the expected repair bill would top 1000 dollars. Since there was some money in the checking account, I decided to buy a new car.

One major theme that I would like to discuss this coming year is managing cash flow. I have always been conscious of this topic but I was especially conscious of it this year because I wanted to make sure that adding the car payment would not impact me too much. So, with a small downpayment, I took a loan at zero percent interest for 5 years. At this point, I have no plans to pay it off early since the mortgage interest rate is at 5 percent currently.

Separately, at the end of this past summer, several changes happened for me at work where I was put into some very uncomfortable positions. And the end result is that I was unable to provide stability for myself and realized two key things:
1. You're never really stable if you're working at a job, depending on that money to pay bills.
2. You cannot live freely/happily if you are in state #1 above.

For me, just acknowledging these things has made me examine my life differently. I have learned how to be more mindful in my life. There is a whole series of things I could write about here on that topic, but I'll save that. Learning some of these techniques has been life changing for me though.

This car loan made me realize that I basically need to get serious about paying off my debt. And the situation at work made me realize that my health was in severe jeopardy if I deferred this process over 20 years which is the remaining time on my mortgage.

If you are a regular reader of this blog you probably know some of my personal finance history and I think that all of that history has finally come to crystallize as something for me and I plan to write short posts about all of these topics in more detail over the coming weeks to describe the latest information and progress.

At this point, the mortgage is at 184,500. The strategy will be to pay at least an additional 1000/month on the principal. Many months it will be more than that. If it was just 1000 additional on principal, that would reduce it by 60K. However, additionally, on months where there are bonuses or other income, some of that will also go toward the mortgage.

In addition to wanting the freedom mentioned in #1 and #2, there are several life circumstances that are happening that make me realize that this is an important step:

1. Parents are unable to sell their homes.
2. Parents are trapped with large amounts of debt.
3. Parents are sick/have health issues.
4. Age is starting to catch up, where I am now in my thirties and retirement doesn't seem so far away.
5. I have spent significant amounts of money on travel and home renovations; I don't need to be so extravagant for a while.
6. Investment Income is down and while my Home will never really be mine, I think it is still a better alternative to parking all of the money in the bank, simply because of the interest.

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