Escaping the Death Pledge – The Ever After

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This is a conclusion of the tetralogy that began with Escaping the Death Pledge – The History.

What’s with the fairy tale reference in the title, Insourcelife? Kudos on paying off the mortgage but come on now, save the fairy tale stuff for children books and wedding toasts. Well, guess what – it’s been two months since I cut a $60,000 check to my mortgage company and it still feels unreal. Having zero debt and a paid off home is a definition of a financial fairy tale, at least in my book.

As you might remember from the previous installment, I walked (ran) into my mortgage bank on May 5, 2015. Cinco de Mayo – the day we no longer owed anything to anyone. The day we broke out from a 30-year debtors’ prison. Finally debt-free at forty years old. Half a million dollars paid off in 10 years with a quarter million dollars paid off in the last 3. The best birthday present I have ever received.

I’ve been pumping myself up with such rhetoric for years now. Envisioning the D-day is what kept me going through a decade of sending additional principal payments to the bank instead of blowing it all on a new BMW or a Wolf range or a hot tub or a thousand other things competing for our money.

It was harder to resist temptations in the beginning but within a year or two my whole Priority Framework has fundamentally changed. Buying freedom instead of things became so ingrained that it was just a matter of time before we achieved terminal velocity necessary to escape the Death Pledge.

I’ve lost count of the times when, faced with a spending dilemma, I made a conscious choice to “do the right thing”. Take the stupid mistake that ruined my beloved Cannondale bicycle for example… Part of me wanted to run out and replace it with a brand new $1,000+ bike to help dull the pain and embarrassment. Instead, I decided to wait and find a replacement on Craigslist. I ended up buying practically the same bike as the one I broke (from the 1990’s!) for $120. That’s $900 extra going to my mortgage principal that month. Multiply that by hundreds of similar decisions over 10 years and all of a sudden there is a tsunami of “extra” money going to buying freedom instead of things of questionable value.

The best part is that once your Priority Framework has changed, you won’t miss any of the marginal value that a “thing” can provide. Is a brand new $1,000+ Cannondale better than a $120 used one? Not to me since freedom is way at the top of my list and $900 goes a long way in getting there. Plus I got back the same bike I loved before – a sentimental value that no new Cannondale could ever hope to deliver.

And don’t even start me with new cars… I wouldn’t want a new BMW even if it was free. Maintaining, insuring, fueling and eating depreciation on a bimmer would cost me thousands more per year than driving my used Mini Cooper.

Since I use my car primarily for commuting to work, wouldn’t it be ironic to spend all that extra money just to get to the place from which I’m trying to escape? And all for what – marginally better performance and comfort? Sabotaging yourself is never a good strategy yet so many of us do it day after day and year after year. Too bad my younger self didn’t have this Priority Framework in place when he signed on a dotted line at the dealership setting in motion a chain of expensive car purchases.

It’s reasonable to expect your mind to blow up achieving any goal 10 years in the making into a firework-filled extravaganza. The reality is that paying off your mortgage is a complete opposite. Save for a requisite “congratulations” from a bank teller this is as close to an anti-climactic event as you can get. Your mind wants the whole world to throw one big party but in reality, no one cares!  Of course that’s just fine and exactly how it should be… But it is a little strange that people will ask a hundred questions about your new (financed) car while not knowing what to say when the subject of a paid off mortgage comes up. I guess it’s easier to relate to spending money than saving… It’s what everyone does and much more exciting!

First sign that things really did change appeared a couple of days after my Cinco de Mayo run to the bank when I logged into my online mortgage account. Oh how I waited for this!

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On June 1 my Mint.com account, oblivious to The News, reminded me that a house mortgage payment was due… It was weird to not have to transfer the $5,000 I would’ve usually sent to the bank. What do I do with all this extra money?!

On July 1 the fairy tale feeling was still there. We have no mortgage!

The last time I felt like this was about a decade ago when I sent the last payment to the bank to pay off a car loan. A huge burden fell off my shoulders and I swore that I will never ever finance a car again. I would much rather drive a $3,000 beater than take out another car loan. I’m dead serious about this too.

With a decade of debt-free car owning experience under my belt and observing how wonderful it has been for my soul and my wallet, I plan to take the same approach to real estate. Simply put, I plan on never carrying a mortgage again.

There is a caveat – I’m talking about primary real estate. If I find a good investment real estate opportunity I have no problem having a mortgage as long as it’s paid for by someone other than me.

So lets look at the things I’m considering now that the mortgage has been paid off. These are just some of the bullet points and action items rattling in my brain that I’d like to put down on “paper”.

The Ever After

  • Never again make another mortgage payment on a primary home.
  • Never again worry about interest rates, closing costs, refinancing, paying down mortgage vs. investing etc.
  • When it comes to a primary home for our family we should be all set for life. We will never outgrow our current house – with 5 bedrooms and over 3,000 square feet we can only downsize.
  • Our house is worth around $500,000 which should buy us a comfortable place to live anywhere in the country. We have no desire to live in a high cost of living area but even in NY (except Manhattan) we can easily find a (smaller) place for that much. That $500,000 will continue to adjust with the general US real estate market so it’s also inflation/comparable-lifestyle-proof. Half a million in today’s dollars is the max I’d ever want to spend on a home wherever we end up living in the future.
  • Open a no-cost $300,000 line of credit against the house. This should address the concern about “having all that equity tied up in the house”. Home Equity Line of Credit interest rates are almost as low as the mortgage rates. There is also something to be said about the power of being able to write a cashier’s check for hundreds of thousands of dollars without either a) having a pile of cash sitting in safe (close to zero return) investments or b) having to run around trying to get just-in-time financing. And did I mention this flexibility comes with zero costs?

I would consider tapping the HELOC for a) downsizing or b) buying a screaming deal investment property or c) a combination of the two. Downsizing is something we occasionally discuss and having a HELOC would make it a much easier proposition. Basically, give an all cash offer on a smaller house, close, do any necessary remodel, move in, put the big house on the market, sell it, pay off the HELOC and pocket a couple of hundred thousand difference. The stress is greatly minimized and you are never carrying more than one (smaller) mortgage. A twist on this plan would be buying the smaller house as an investment property, doing some improvements, renting it out and then eventually moving in ourselves. Lots of options!

Again, the beauty of HELOC is that there are no fees and no opportunity cost. It just sits there until you need it and then you pay lower interest rates since it’s secured by your primary home.

  • Consider the money “tied up” in our house as a hedge against other investments that comprise our net worth. During the recent housing crisis the value of our home went down about 10% if we were to sell at the absolute bottom. Not at all pleasant but certainly much better than what happened to the rest of our portfolio. Knowing that the $500,000 in equity can go down by “only” 10% while providing us a nice place to live is very comforting to me. This argument works even better considering we really are open to downsizing and cashing in some of that equity if we decided it was the right move for our family.
  • Funnel all excess cash including the $5,000 or so we used to send monthly to the bank to Vanguard instead.
  • Continue living within the Priority Framework established by our 10-year mortgage payoff journey. It’s so ingrained now that I can’t picture living any other way so this won’t be hard. Doing so guarantees that we will become financially independent without sacrificing anything that’s important to us.
  • Now that our biggest expense is off the books I plan on tweaking the Priority Framework just a bit to put additional emphasis on travel and leisure. I’m happy to report that this bullet was put into action immediately after finishing the MAP – we’re going to spend 16 days in Costa Rica in August! We worked really hard and it’s time to reward ourselves!

Here are a couple of places where we’ll be staying at in Costa Rica – what do you think? Not a bad way to celebrate Escaping the Death Pledge 🙂

Infinity pool… why not?

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Kids will have so much fun playing inside our own LIGHTHOUSE!

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This is another place we’ll be staying at… How about that view of an active Arenal Volcano?? That’s not a cloud by the way – that’s the steam rising!

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Tough to beat this view 😉

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We booked two other houses to explore different areas in Costa Rica but the ones you see here are definitely in a league of their own!

We’re going with our family (10 people) so booking these unbelievable houses on Airbnb cost about the same as a hotel. We’ve never stayed at any place this nice and we’re really looking forward to this experience! If you have not tried Airbnb you should really give it a shot (get $25 off here) – we’ve booked a couple of places before and loved it so much more than a sterile hotel experience. It’s so nice to have all the comforts of our own home (kitchen, fridge, washer and a room to spread out), especially with a toddler!

Well folks, this is the end of my thoughts about our journey to pay off half a million dollars in 10 years. And to think that in the beginning I thought a single post would cover it. Here we are almost 7,000 words later and I still feel like I can keep on going… I guess I underestimated my excitement!

One thing is certain – having zero debt and never ever having to pay mortgage again is a huge milestone of life-changing proportions.

Next stop – Financial Independence!

 

7 thoughts on “Escaping the Death Pledge – The Ever After

  1. Glad the joy isn’t dissipating rapidly for you! We’re likely going to keep our mortgage for a while yet, though its value is significantly lower than yours (at its highest the balance was only $112K) so it’s not really something we worry about at all and the rate is really low.

  2. I guess I have a really strong aversion to debt. I paid off my last auto loan many years ago but I’m as happy about it today as I was on the day I sent the last payment. I’m pretty sure it will be the same with the mortgage… which made the decision to pay it off that much simpler!

  3. I hate to be the party pooper on what is at the moment an unalloyed massive achivement, but

    Again, the beauty of HELOC is that there are no fees and no opportunity cost. It just sits there until you need it and then you pay lower interest rates since it’s secured by your primary home.

    Pull that HELOC and the death pledge is back around your neck. It’s a mortgage by another name. For sure, if you move and it’s a more efficient way to get a better price, great, because you are trading within the same asset class. Use it for a rental property leveraged, and, well, the pledge is back…

    It’s a fantastic achievement and I salute you, but don’t let that death pledge sneak in by the back door without at least calling out its name. Nothing wrong in doing it if that is a deliberate decision, but a HELOC is still a mortgage by another name if it is secured on your primary home ;).

  4. I hear you loud and clear, Ermine. I have no desire to trade my mortgage freedom for a HELOC any time soon. However, I’d like to have that option in place just in case the right opportunity comes up.

    Out of the two options that would make me carefully consider tapping the equity line, downsizing is much more likely than finding a screaming deal investment property. It would have to be something similar to when I picked up a foreclosure town home for my mom 3 years ago for $90K which is now worth $170K. It was one of those deals where if you had the cash you won the bidding war. Now, chances of something like that happening again are pretty slim, but I’m always on the lookout and want to have the “cash” ready. I was just saying that a HELOC is the best instrument that I can think of for something like that. Again, probably not gonna happen, but it’s there if I need it – either for downsizing or a once in a lifetime RE deal – you never know!

    • I also wanted to add that I would tap the HELOC only if I could pay it off within a couple of months – after liquidating other investments. I don’t think I made that clear in the post. It’s a way for me to remain liquid without actually having to have a bunch of cash sitting in the bank doing nothing.

    • Thank you, IFS! I’ve started Extreme Vanguarding as soon as I received a mortgage pay off letter so we’re off gunning for FI now. I hope to write a similar series of posts about reaching that goal as well, but it might take a while to get there.

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