In this post I’m sharing the mortgage payoff journey for our first home purchased in Tennessee in 2016.
We are not outright opposed to debt but see the value in eventually living without tons of payments taking our income. Because I’m also a business owner with variable income it makes sense to us to have lower month obligations.
For these reasons we want to eventually pay off this mortgage and any additional real estate we buy.
Buying Our House
We bought our home in 2016 at a very reasonable price that no longer exists in our area.
We purchased the home with an FHA loan instead of saving up a larger down payment. I’m glad we did so at the time because what followed was 5 years of consistent price growth in our area.
We purchased our 1700 square foot home for $158,900.00.
Here are all of the important home purchase numbers:
- Purchase price: $158,900.00
- Deposit: $1,000
- Down payment: $5,304.00
- Closing costs: $8,342.21 (Seller paid: $6,093.22)
- Upfront PMI: $2,641.71 (Monthly PMI: $99.00)
- Loan interest rate: 3.65%
- Loan amount: $153,596.00
Taking out a FHA loan meant we would pay thousands in PMI both upfront and as a monthly amount but we planned to refinance once we hit 20% in equity.
Early Mortgage Payoff Progress
Our early mortgage payoff process was slow but we did make small amounts of progress.
You can see this in one of our earliest mortgage payoff update videos back in 2019.
After three years of making mortgage payments we were down to a balance of $137,550.67.
By December 2019 when I made this video we were about one year and 10 months ahead based on our amortization schedule. It felt great to be making the “October 2021” payment in December 2019.
This inspired me to keep going and eventually pay off this loan whether we planned to live here or move and keep it as a rental property.
Our Mortgage Payoff Strategies
For the first five years of paying down our mortgage we used two main mortgage payoff strategies.
The first mortgage payoff strategy was to make biweekly mortgage payments.
With this mortgage payoff strategy you make enough biweekly payments during the year so that two go straight toward paying down principal. This means we were making one full payment per year towards principal.
The second mortgage payoff strategy we used was to round up our mortgage payment.
Each month we rounded up to an even number and made the extra apply straight toward principal.
This was an easy thing to set up with our mortgage company and we did not miss the small amounts per month. Sending an extra $7 or $10 per month doesn’t seem like much but that adds up over time.
Since we were not aggressive without payoff plan these two passive payoff strategies helped us get to the point where we could refinance our loan and drop PMI.
Refinancing Our Mortgage
One of the goals we had for our mortgage payoff plan was to stop paying $99 per month to PMI and instead pay that towards reducing the loan balance.
To do this we refinanced our loan in 2020.
I previously wrote about the new mortgage details and our refinance closing costs.
Our new loan details:
- Mortgage balance: $142,000 (closing costs rolled in)
- Loan interest rate: 2.75%
- Loan details: conventional, 15 year fixed
We refinanced during a period of very low rates. We also switched to a 15 year loan because it would barely change our payment but would double the amount going toward principal each month.
Dropping PMI meant $99 of our month payment was going toward the actual mortgage loan instead.
The balance started dropping at a much faster rate at this point.
Mortgage Payoff Progress Updates
Despite having a very low interest rate we do still intend to pay off the loan earlier than 15 years.
Because of this I’ve started doing quarterly mortgage payoff updates on my personal finance YouTube channel.
After using YouTube for accountability while paying off student loans, I know that it is a great way to stay accountable to financial goals.
I shared multiple mortgage payoff updates in 2020 and 2021 that can be found in my mortgage payoff series playlist.
2020 Mortgage Payoff Update
In 2020 I made several big moves that did not immediately reduce our balance but would pay off in the future.
Mortgage payoff highlights in 2020:
- 2020 Starting mortgage balance: $137,550.67
- 2020 Ending mortgage balance on 12/22/20: $135,434.00
- 2020 Ending mortgage balance on 12/31/20: $134,773.69
- Mortgage balance reduced over $2,700.00
- Loan changed from 30 year to 15 year
After the video above on 12/22/20 I had an additional mortgage payment applied which reduced the balance even further to $134,773.69.
The actual numbers did not change much in 2020, but the payoff velocity ramped up dramatically at the end of the year after refinancing.
Before refinancing, $282 per month went towards principal reduction. After refinancing, $651 went toward principal reduction each month.
While the actual loan balance did not drop much we started paying more than double towards principal each month.
2021 Mortgage Payoff Update
In 2021 we made much more progress with the actual reduction of the mortgage balance.
Mortgage payoff highlights in 2021:
- 2021 Starting mortgage balance: $134,773.69
- 2021 Ending mortgage balance: $124,661.70
- Mortgage balance reduced: $10,111.99
- Transfer Tuesday principal payments: $1,478.46
In 2021 we did not focus much on paying off the mortgage, but the mortgage payoff strategies we already put in place did a lot of work.
Because we have a biweekly payment, $650 went straight toward principal twice during the year. That reduced the mortgage balance by $1,300.
Since we switched to a 15 year loan, over $650 per month was going to reduce the balance automatically. That only grew throughout the year so every month more money went to paying the actual balance of the loan.
Overall I was very pleased with the pay off progress in 2021. We did not devote much money or mental energy toward this goal and it kept going!
Mary is the founder of Pennies Not Perfection where she shares her journey to build wealth through online income. She quit her day job in 2021 after she doubled her 9-5 salary.
Mary's favorite free financial tool is Personal Capital. She uses their free tools to track net worth and work toward to financial freedom.