Mr. Frugal Toque on Mortgage Freedom

Foreword from Mustache:

Almost exactly one year ago, our Canadian correspondent Mr. Frugal Toque and his family reached a nice milestone: a mortgage balance of Zero. Although early retirement and financial independence do not strictly require you to pay off your mortgage (or to own a house at all) as long as you have other investments to cover your housing outflows, for many of us there is an irrational and long-lasting glee that comes from owning the place in which you live.

From a rational perspective, sure, stocks and other investments will tend to return more than the 4% you’ll save on mortgage interest. But the mortgage “return” is guaranteed, and fully non-correlated to the stock market. Plus your home will always be yours regardless of what shenanigans the financial system might pull. 

Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book.

Mr. Toque wrote the story below right after he first killed the thing, then added an afterword to explain how he felt one year later. Finally I have found the right time to publish it. Enjoy!


Mortgage Freeedom

soloI’ve never liked debt.

I should say that first because, of all the privileges I’ve had in my life, developing a hatred of owing someone money has been one of the most profitable.  Every time in my life that I’ve ever borrowed so much as a loonie[1], there’s been a flashing red sign over my head:  “NEGATIVE $1”.  Once I forgot to pay back a guy ten bucks I owed him and he had to remind me.  I am ashamed to this day.

This has given me an edge in life that I can’t overstate.  The idea of running a balance on a credit card is so alien to me that I can’t believe anyone does it, never mind the breathtaking number of people who are comfortable with it.

On the subject of a mortgage, however, I ascribed to the wisdom of the times.  Given the size of house Mrs. Toque and I had decided was appropriate, it made more sense to get in on a fairly cheap market (Ottawa in 2002) rather than rent while gaining no equity.  With our down payment, we took out a mortgage for approximately $260 000.  For the first couple of years, when we were financially flopping around like fish out of water, we didn’t even pay attention to our mortgage.

“Strange,” we seem to have been thinking.  “In this one hand I have extra money.  In this other hand I have a mortgage.  I suppose we should buy a big television.”

Yeah, we really did stuff like that.  Not only is it a sad story, it’s also the tragic plot followed by the vast majority of house-“owning” humans in North America.

“Well, you see,” common thinking goes, “I’ve got a 25 year mortgage.  Can’t do anything about that.  I guess this extra money in my bank account should be turned into a boat, some leather clothing and a heated, indoor swimming pool.”

Then, about two years ago, when Mustachianism had already started chipping away at our habits, I got laid off.  You can read about that in detail, but the relevant bit is that Mrs. Toque and I enjoyed my period of unemployment so much that we became determined to make it a permanent thing.

The first obstacle on that road, from our perspective, was to kill off the mortgage.  Neither of us could rest easy knowing that a monthly payment so large would be hovering over our heads.  So we looked at our budget.  It turns out we live on about $2300, eating fancy seafood and enjoying our family martial arts workouts.  Our mortgage, as well, was set at $2k per month.  Without going into super personal detail, let’s say my salary is quite a bit more than $51k.

So I went into Kung Fu spreadsheet mode and my predictions looked something like what you see below.  The green line is how long it could have taken us.  The red line was another, more serious route.  I turned to Mrs. Toque to say:

How it could have gone vs. how it really went

How it could have gone vs. how it really went

“Honey?  We can beat this fucking thing into the dirt by the end of next year.”

“Really?” she asked.

I waved my hand at the undeniable, mathematical facts displayed on the screen.  A tingly, Han-Solo-saves-the-day, euphoria rushed over us both.

“Hell.  We’re that close?” she said.  “Let’s do it.”

What ensued was a laser like focus that would have made Mr. Mister proud.  Oil changes became things done in our own garage.  The barely used motorcycle was sold.  While I toiled at the 9-5, Mrs. Toque engaged in a culinary conquest that involved making large batches of chilis, sauces and curry dishes and freezing them in yogurt containers.  Our house was scoured and cleansed of numerous Products and Outgrown Clothing in exchange for hundreds of dollars through various Internet intermediaries.  Every bonus or raise was purposely channeled toward this one goal.

Video game purchases were put off, allocated as exceptional acquisitions belonging to special occasions like Christmas and birthdays.  We cut out restaurants in similar ways, doggedly keeping to our $2k budget.

There have been a few times in my life where I have felt something seize hold of me like this: a karate tournament when I was young; the desire to run 10k in under 50 minutes in more recent times.

This was something more intellectually powerful and more enduring than any of those previous desires and it drove the two of us for just about a year and a half.

On January 1, 2014, the Toque family made its final mortgage payment.

My grandmother and her sisters could drink you under the table.

My grandmother and her sisters could have drunk you under the table.

As promised, a bottle of whiskey was purchased.  You can’t really do anything impressive in my family without shots of Crown being involved, and this goes for births, deaths, weddings, birthdays, religious holidays and the stomping into cinders of a mortgage.

And though the shots were hammered back to mark the occasion, the gravity of the situation didn’t pull us in right away.

Mortgage freedom, like any other widening of the straits through which we guide our white-water kayaks, takes a while to register.  There’s this uncomfortable lack of turbulence and drama that makes you think something is about to go wrong.

As February came around, the instinct to “check the bank account” still nagged at me.  By March, money was just sitting there, comfortably reassuring us of the reality of our financial situation.  I scratched my head in dismay.  We’re in June now and it’s really dawned on us that our monetary burn rate has dropped by half.

Yes, it's exactly like this.

Yes, it’s exactly like this.

I wake up every morning and I can take a deep, relaxing breath knowing that I don’t owe anybody anything.  I ease into my morning cup of tea as if I were Patrick Stewart lounging in the ready room.  Every paycheque that comes in?  That’s ours.

The danger now, as with any reduction in stress in our lives, is that we let the new width and relative calmness of the river we fare allow our paddle strokes to become sloppy.  This is not the time, in the first months of our mortgage freedom, to start piling up the Lego sets, golden-handled frying pans and $500 bicycles that the 8 year old will outgrow by next summer.

We need only remind ourselves that expensive items, and even expensive experiences, will not make us happier.

As per the advice of the Mustachian horde, we cranked open a Questrade account and started dumping that money into Vanguard ETFs via RRSPs, but we can only do that for so long.  The key to our existence now, as we run the last leg of the race to early retirement, is not to let money sit around idly, tempting us with its purchasing power, but to get it stashed away as quickly as possible.  Online brokerages make that bit pretty easy: you can deposit money directly from your bank account into RRSP or TFSA accounts (The Canadian equivalent of Roth thingies and 401 what’s-its-nuts.)

But that’s only the technical side of things.

The heart of the matter is something else entirely.  It’s looking at the debts side of the spreadsheet and seeing nothing there.  It’s also a clear, wide open path from this point to the spot on our life journey where neither of us is ever again obliged to work in order to have the necessities of life.

Early retirement wasn’t an entirely real thing, at least in my mind, despite having seen that the Mustache family had clearly achieved it.  Making our mortgage a thing of the past, however, emotionally solidified the mathematics.  The equations and the spreadsheets, like the one you see above, aren’t nearly as tangible until you actually see the descending line hit the x-axis.  Then, very slowly, you realize that the math was a map of the world as it actually exists.  There actually is money piling up in the bank account.

And if the road to mortgage freedom is real, then the road to early retirement is real, too.

Update: January 2015

This article was written some time ago, as the feeling of being mortgage free was just starting to sink into the Toque family.  Our primary worry, naturally, was that we might be tempted by all this money floating around into becoming the sort of Consumer Suckas that we detest.

I’m glad to report, on further examination, that no such thing has happened.  Our monthly expenses did rise, from $2391/month to $2416/month, which is actually less than inflation.  So being mortgage free came without any statistically significant change in our spending habits.

Separately, what have we done with the money?  Exactly what we said we’d do: it’s all gone to fill up our RRSPs and TFSAs, which still had room from previous years.  As I discussed in a previous article, my priorities were:  RRSP, Mortgage, TFSA, due to my own hatred of debt.  So once the RRSPs are full up for the year, I dump everything into TFSAs.  Sadly, I’m going to run out of TFSA room sometime in the next year or so, necessitating further investigation into “Dividend Mutual Funds” and the magic I can work with them.

[1] – no seriously, that’s what we call a dollar in Canada.

It is now easy to find everything from Mr. Frugal Toque on this blog since he has his very own category.

  • nicoleandmaggie January 21, 2015, 6:28 pm

    We could actually pay off our mortgage tomorrow, but instead we’re stopping the pre-payments we’d been making with the March payment so I can funnel that money into taking next year off from work!

  • Ed January 21, 2015, 6:36 pm

    I paid off my mortgage in March 2014. It was an incredible feeling. I know the money would have earned more in the stock market, but I don’t regret it at all. I saved over $48,000 in interest, and what was once my mortgage payment is now direct deposited into my mutual fund account. I hope to put my savings back to pre-payoff levels in about 2.5 years. My advise is to pay off that debt and never look back. My next goal – retire in six years.

  • rpr January 21, 2015, 7:00 pm

    I agree very much that it really is more of an appeal to emotions rather than cold hard math. It depends so much on your situation. Here is ours:

    We have an extra $46K available per year to save, invest, mortgage pay off etc. This is Pre Tax. My options are

    1. Pay off the mortgage. We are in the 33% bracket (US federal+state). The amount available after tax to pay off the mortgage is 46*(1-0.33)=30K. You will pay 16K to the taxman per year.

    2. Invest the entire 46K into two 401ks and 2 IRAs. No taxes paid when contributing. Let’s say you retire early at 55 and have to withdraw from retirement funds to pay off mortgage. In retirement our tax bracket will be 20% (US federal+state). The amount available after tax to pay off the mortgage is 46*(1-0.2)=36.8 K. You will pay 9.2K to the taxman per year.

    Savings each year in option 2: almost $7K. Using Option 1 I will probably be mortgage free sooner but would have paid $7K per year for this emotional good feeling in being debt free.

    Even though I can think of it mathematically, often times I do feel that it would be nice to not have a mortgage. But every time, I feel this way, I go back and look at my spreadsheet and know that I did the right thing mathematically by maxing out my retirement accounts rather than paying off the mortgage.

  • Gotim Himel January 21, 2015, 7:04 pm

    Congratulation! This is inspiring – hope to be there by the end of the year, when the mortgage is coming up for renewal. Eight friggin’ long years. When I was 25, I had three goals: (1) six-figure income by the time I’m 30, (2) mortgage-free by 35, and (3) $1M net worth by 40. I beat goal 1 by one year, and it still pisses me off that I will have missed goal (2) by two years. I look forward to that dragon being slayed for good. I will fart in its general direction!

    One thing this story hammers home for me though is the impact of timing. I graduated around the same time as three engineering bloggers – Mr. Toque, Canadian Dream and Million Dollar Journey – except I went back to graduate and professional school, so I could only buy a house in 2006, with about a 5-year delay. It still amazes me how cheaply each of these [peers? personalities? random internet people I don’t know and shouldn’t compare myself to?], as well as actual friends who just started working full-time around 2000/2001, were able to pick up their houses. In 2000, I never would have predicted a $200,000 opportunity cost in house price alone.

    Ah well, back to working on goal (3)……

  • Joan eh? January 21, 2015, 7:21 pm

    Timely post on the day that Poloz lowered interest rates! Do you have a crystal ball MMM&FrugalT?

    TD bank says it won’t lower mortgage rates. It will be interesting to see what the other banks do. I’m afraid Canadians will take on more house debt :-(. The cut is supposed to encourage business debt, not personal debt..

  • mountinmustachian January 21, 2015, 8:05 pm

    Timely article as I just paid off my mortgage today. Truly it was anti climax-tic…still has not sunk in I am sure. My fears are same as his Toque-ness in that I fear myself and the consumeristic monster within. Likely I will find a safe place to invest so $ are not sitting in arms reach. 49 and totally debt-free feels good. Layoffs no longer carry the fear they once did. WOOHOO!

  • George January 21, 2015, 8:27 pm

    Great posting Frugal Toque. We paid our mortgage off in Mar of 2014, so it looks like you beat us by 2 months. Never the less, I am still proud of having this out of the way at the age of 33. I can relate to your post. Paying off the house you plan to live the rest of your life changes you in ways you can’t explain.

    It literary changed my perception of life. Somehow it grounds you to consider the important things in life like today making time to take my little boy out in the snow and play this afternoon, and putting off extra work assignments. There will always be more work for salary if you want it. Being completely debt free with no mortgage is like a early taste of FI before you reach it. Now all that is left for our goals anyway is to reach full FI, according to my spread sheet by the end of this year, I will have enough passive income to pay for a very nice health care plan for the rest of our lives. Then a couple more years after that to build up passive income for food, taxes, and utilities, then we are in the clear. Best of luck to you.

  • Jared January 21, 2015, 8:27 pm

    I’d like to hear from folks who started aggressively paying down their mortgages but then had to do an about-face.

    In our case, we had planned on paying down the mortgage in 3 short years. The mortgage payment made up roughly 50% of our core monthly expenses. Sure, by paying down the mortgage early the math says we might end up with less total money in the end, but without the mortgage we could drastically reduce our need for steady income–part-time work in 3 years, here we come!

    Everything was going swimmingly until, out of the blue, one third of my (very profitable) division was laid off (and this was during a bull market with our company stock price steadily rising).

    Two lessons:

    1) Job security is an illusion: your job is secure… until it isn’t

    2) Paying down your mortgage buys you exactly nothing–until it’s all gone: that 60 grand or so that we’d paid down did NOTHING to remove our $1,600/month mortgage payment (at least for the next ~20 years)

    Our new plan is to keep the mortgage and invest our savings until we’ve got enough to eliminate the mortgage fully. At that point, I’m not sure what we’ll do but (and this is important) at that point it won’t (financially) matter.

    • Eldred January 21, 2015, 9:59 pm

      Could you have re-financed to drop the payment, since the balance was $60K lower?

      • Jared January 22, 2015, 9:02 am

        Yes, that is a good point to consider. Although in my particular case interest rates had risen by about 0.5%, so refinancing would have only saved ~$200/month (while extending the loan term by many years).

        Bottom line: I would have rather had $60K (> 1 year of expenses) in liquid assets if I’d lost my job–instead of the ability to lower my mortgage payment from 50% of total expenses down to 47%.

        • Eldred January 22, 2015, 9:27 am

          Ah – I thought it might have made a bigger difference than that. I’ve had times where lowering a payment by $200 a month would have made the difference between keeping my hours and foreclosure…

      • rpr January 22, 2015, 2:16 pm

        Jared: you raise a very important point.

        One issue is that if you lose your job then may not be able to qualify for a refinance.

        What I’m doing is the following: I have a thirty year fixed rate mortgage at 3.5%. Any excess savings that could be used to payoff the mortgage faster with additional principal payments is instead invested in the market. Some day the balance in this investment account will exceed my mortgage balance. I will consider myself to be mortgage free on that day.

        • Jared January 22, 2015, 8:17 pm

          But once your investments equal your remaining mortgage balance will you actually pay it off (and lock in your “mortage-free state”)? What if you lose your job AND the market crashes? :)

    • Ron S. January 22, 2015, 7:40 am

      I paid down my mortgage aggressively for the first 2-3 years (and refinanced end of year 2) before I learned how to invest. The difference for me is that I always hold a lot of cash in reward checking accounts (currently earning 3% on average). I never put so much toward the mortgage that I didn’t have at least a year’s worth of cash reserves. My original mortgage was 288K and now I owe 143K and I have 11 years left. I am no longer putting extra payments toward the mortgage. All extra money has been going to VTSAX for the past 2 years.

  • Prudence Debtfree January 21, 2015, 8:29 pm

    Impressive work, Mr. Frugal Toque! We’re reformed “Consumer Suckas” (so don’t detest us) on the road to debt-freedom, and soon, our $135,000 mortgage will be the only debt we have left. I sometimes wonder if we’ll have the same drive to kill it off as we’ve had killing off our consumer and business debts. Your post makes me psyched. The fact that you’re from Ottawa too probably helps to make the possibility of mortgage freedom more real to me.

  • LeisureFreak Tommy January 21, 2015, 9:45 pm

    I congratulate anyone who pays off their mortgage. When I retired the first time at age 51 I had a mortgage which was manageable with a payment under $900 total (Ins+Taxes) so my retirement budget handled it and paying it off wasn’t a priority. I took on a new career following my passion and interest and just decided to put all of the pay checks toward the $98K mortgage. After all, my retirement was already funded so why not. 18 months later paid that sucker off. I have since retired again and it is very liberating to not owe anyone anything. Any money I earn now goes right to investment and savings funds and Like Mr. Frugal Toque there hasn’t been any lifestyle inflation just a reduced cost to my lifestyle. Some of my friends bring up the old investment return vs. the low mortgage interest savings argument but peace of mind is worth something and I have never met anyone who regrets paying off their mortgage.

  • Leo January 21, 2015, 11:35 pm

    I do struggle with this issue quite a bit. 2.79% mortgage that started out at $380,000 a bit over a year ago when we bought. On a schedule to pay it off in 9 years. 2.79% is miserable compared to the 7% that my pension fund earns (and I can contribute my RRSPs to). For now I’ve decided to fund RRSPs first, then pay the accelerated mortgage payments, then anything left over goes into TFSA. I probably would be much better off filling my TFSA though, just need to get past that debt aversion.

    • Schmidty January 22, 2015, 6:03 pm

      When you say that your pension fund earns 7%, are you referring to dividends and capital gains? Since Mustachians are in for the long haul (and presumably living off of the passive income from their nest eggs), you might want to compare the mortgage rate to only the dividends earned from your pension fund.

  • Gen Y Finance Guy January 22, 2015, 6:39 am

    @ Randy

    You are absolutely right. Most people don’t understand the deduction and how it benefits them (assuming US here). I would even go as far to say that most people don’t eve do the math to see what the impact is on their financial situation compared to renting. There are no free lunches.

    When I was in the market for a house after paying rent of $3,000/month I was looking to buy a house to not build equity in an asset (instead of throwing every time away that goes towards rent), but I wanted to lower my monthly expenses so that I could divert money elsewhere.

    I ended up buying a house with a mortgage that is around $2,215/month. On a normal payment we have about $500/month that is going to principal reduction, $1,100 towards interest, and $615/month that goes towards property taxes. So when I do the math my effective rent is the cost of interest and property taxes or about $1,815/month. Now I live in California and my federal tax bracket is at 28% and my state tax bracket is 9.1%. So to get my tax adjusted rent if you will I would take 1 minus the 37.1% (federal + state tax rates) and multiply it by the $1,815. This puts my effective rent at $1,141/month (1-0.371)*$1,815.

    This is a savings of $1,858/month vs. the $3,000/month I was previously spending every month on rent. And lets face it, I have to live somewhere.

    Now some in this feed would argue that I will have maintenance that I haven’t factored in. I buy that argument, so lets assume $250/month because I have a fairly new house (built less than 10 years ago) and I also have talent in the family that usually help with the work. So we take $250/month from the savings of $1,858/month and are left with $1,608/month.

    Now once you subtract the $500 in principal reduction then my net increase in cash flow is around $1,100/month. That is real additional cash that use to be leaving my account every month to pay for rent. Now I can use that to make investments.

    So I urge everyone to do the math and consider their own financial situation as to whether a house makes sense to you or not. And like many have said on this post, if you do buy a house, paying the mortgage off early is a personal choice.

    I personally like the idea of being mortgage free, because of the options it gives you. We are on track to pay our mortgage off in 7 years or less (before we are 35). And I would argue that anyone that is in government bonds ought to be willing to pay off their mortgage as well. The 30 year government bond is paying 3% and anything with less duration is paying less. So if you are willing to put your money into bonds, than why wouldn’t you be willing to pay off your mortgage and save 3.5% of interest. Interest saved is the same as interest earned.


  • David C January 22, 2015, 7:32 am

    Congrats on paying off that mortgage. I am shooting for five years on mine. Every chance that I get, I funnel extra funds into paying it off. I cannot wait until that day, as the shots will taste all that much sweeter.

  • MandalayVA January 22, 2015, 8:04 am

    Way to go paying off your mortgage! We paid ours off in November. We’re older so we’re busily funneling money away, and since we plan on selling our condo once we retire that’s just more money into the retirement coffer (and we’ll actually turn a profit because we live in a “gentrifying” neighborhood).

  • Rob January 22, 2015, 8:34 am

    Years back, living in Montreal, we bought our first house with a fixed interest mortgage (9%) to maturity – none of that renewal crap for moi! Time passed, the house doubled in value, and then we took a Head Office Transfer to Toronto. House prices there being twice those of Montreal – and mortgage interest rates not fixed to maturity. Fortunately we had moving assistance as well as housing assistance from my employer. Housing assistance represented giving me the difference between the market value of our Montreal house and an equivalent house in TO. I say “giving” because it was tax free money (not a loan), spread over 10 years, added to my salary. Pretty sweet, eh? Only problem was it also represented “golden handcuffs”. If I ever left that employer then I would lose all that free money income. Soooo, over the next number of years, we prepaid down that TO mortgage like crazy until it was fully paid off. Talk about incentive, eh? You also have to be aware that mortgage interest rates back in those days were in the double digits! Anywho, time passed. The mortgage was gone when we were in our mid 40’s and I could have taken early retirement at some point but, enjoying my job, I kept employed up to age 66 (not 65 – which meant that I receive extra CPP benefits due to the extra contributions that I and my employer kicked in). So, all in all, it’s all worked out well for us and we now can enjoy spending our loonies ($1) and toonies ($2) in a leisurely fashion! :-)

  • Tigerlilly'mom January 22, 2015, 9:31 am

    When we moved east for family reasons in 2003, we knew we were in the middles of the housing bubble. Our old house
    sold for enough money that we could buy here for cash. We went for a smaller home in a really good neighborhood. We
    thought about getting a mortgage and putting it all in the market, but decided we would sleep better without the
    mortgage, especially since my wife was quitting an outside job to take her new business to full time. At this point we
    have been without a mortgage or any debt since then. I am retired and my wife passionately loves her company which has grown hugely, and she wants to sell it when she is ready to quit. We just bought a new to us car for cash, and by
    living simply are still saving a lot. Most important is that we decided in our first year that we wanted time and life
    much more than we wanted THINGS. It is a decision we have never regretted. We are FI now and the freedom from
    that is incredible. I haven’t spent any money for a few weeks now at all, and love giving back to the world volunteering.

  • Dragline January 22, 2015, 9:34 am

    What I remember most about paying off ours was not the financial aspects, but how it felt like you were on a quest with your spouse. And we both talk about it in those kind of terms when we explain it to our children.

    Sounds kind of like this, actually (at about 1:20): https://www.youtube.com/watch?v=680NlRI3v2I

    I don’t think you can underestimate the benefits to a marriage of going on a quest together, a debt-slaying battle or otherwise.

    • SrPennyLip January 22, 2015, 10:49 am


      I could not agree more; the shared goal has a way of laser-focusing you both (provided each is on board with the plan). We are 4 months away from being done with our mortgage and can hardly wait. At the moment, it is a bit difficult to comprehend what it will feel like on the other side… but I am anxious to find out.

  • Copeland Casati January 22, 2015, 9:37 am

    Another great article, we are following a similar path and we have been enjoying hearing everyone’s tales here. I agree with Free Money Minutes comment about not having a guarantee of employment (especially as my husband is a consultant in technology contracting) so our own emphasis is on eliminating the mortgage.

    One thing I haven’t seen in the articles is also eliminating utilities- when we sold our “big” house, we (disclosure: this is going to sound promotional and I am not intending it to be, I feel it’s important to the discussion)
    1. built a smaller, *energy efficient* house (yes from my line of prefabs but the emphasis is on ENERGY EFFICIENT) and
    2. then went OFF GRID.

    Even when we had a battery bank disaster (detailed here http://prefab-green-home.greenmodernkits.com/2014/12/where-at-off-grid-modern-prefab-house-i.html) we still came out WAY AHEAD financially.

    The average annual Virginia electric bill is $1,488.
    Doing the math, we paid $450/year for utilities even with a “failed” battery bank before its time.
    For… everything- water, heat, electric…
    Once we get the new battery installed we are hoping its lifespan is 15 years, and it cost 3k.
    3k divided by 15 = $200 a YEAR I am expecting I can afford to pay when I’m 80!

    Just thought utilities can also be something that can be considered a burden/debt, relieved.

  • Jay Dub January 22, 2015, 9:55 am

    We paid off our mortgage on Thanksgiving day 2014. There’s just something to be said to know you can go to work and look your boss in the eye and tell him to “kiss off!” and you will still be fine. No more living where you fear the boss but rather that the boss fears you is very precious! A friend of mine owns a machine shop and he loves it when his workers carry debt. He knows they have to be there. SLAVES!

    With no debts and owning the house, it’s nice to know you can make it just fine without the current job and find something else even if it does pay less. That my friend is freedom; not as much as ER, but getting closer. Our budget gives us freedom!

  • tracey January 22, 2015, 9:56 am

    I’d love to see the break down of where Mr & Mrs Frugal Toque spent their money in 2014 (similar to the one MMM publishes annually)

  • MrP January 22, 2015, 10:43 am

    Here’s a view from across the pond….. (UK).
    Currently you can get a base tracker mortgage here for 2% if you have 40%+ equity in your house. Also, in the UK you can contribute up to $60000 per year into your pension and effectively save 40% tax (contributions are before payroll tax). This money becomes accessible at age 55 and you can access 25% of it tax free. Thus, if you are a higher rate tax payer earning upwards of $120,000, it can make sense to only pay the interest on the mortgage and use the money you would have put towards paying off the principal of your mortgage into your pension instead, thus getting an effective free 40% uplift (also you are invested in equities in a tax efficient wrapper). Come retirement, you can take out 25% of your pension tax free and use that to pay down the principal and still have a nice fat pension pot (having this in place also means you need only enough money to get you from ‘now’ to 55 to achieve FI – i.e. the 4% rule can likely be stretched somewhat – I’ve not done the maths on this one yet, anyone care to assist? :) )

    There are of course risks to this strategy such as the gov. changing the pension rules – my view here though is that they will do more to make pension saving attractive rather than the reverse as the pension saving rate here in Blighty is dire. And of course I am assuming equity returns will beat the average tracker interest rate.

    Just a thought for your British readers, I know there are plenty. Inspiring blog btw, thanks.

    • Mr. Frugal Toque January 24, 2015, 12:28 pm

      This sounds suspiciously similar to how RRSPs work here in Canada. We can take 18% of our salary (up to a certain limit that changes with inflation every year) and ‘stash it away before income and (I believe) payroll taxes are deducted.
      I have always recommended, unless you have a very unusual salary arrangement, that RRSPs must be filled before extra payments are made against a mortgage.

  • Stan January 22, 2015, 10:48 am

    I had the same feeling about the mortgage. I bought my house in 1999 with a 30 year mortgage ($600 a month) with 20%+ down so no PMI charges and after 4 years refinanced to a 15 year loan ($700 a month). I had credit card debt also. I got looking at my money going out and most of what I earned went to taxes and interest on borrowed money. I can’t do much about taxes but the interest was something I realized that if I had no debt that money would be mine to do what I pleased. Fast forward 2 years and my credit card debt is gone using the snowball method (paying off the smallest debt first, then applying that to the next bigger etc). Then I used the money that was going to the credit card companies for principle and interest to pay $1000 a month on the house. After shedding unnecessary frills I upped the payment to $1500 a month. After working a second job and amassing the remainder of the mortgage loan in savings I realized that the $14,500 was costing me $135 for 2 months while netting me $4. That was MLK day last year. I called the mortgage company and got a payoff number, went to a satellite outpost of my credit and had them post an electronic check for settlement. One year later I have been able to keep an amount of money for personal use that I have never had before. I had no irrational ‘fear’ of paying off the mortgage as now there is no way I will lose my house to foreclosure (other than an accident or some .00001% chance like not paying taxes).
    Do I keep a monthly budget to track every penny earned and spent? Not anymore. Am I saving like mad? Yes, Am I taking more trips now? Last year 2 trips to Aruba and a n 11 day cruise from Florida to the Panama Canal and back and just returned from a 17 day cruise from California to Hawaii. Life is good when there isn’t a monthly mortgage payment or credit card debt.

  • Stan January 22, 2015, 10:54 am

    The striking question to ask yourself is: if your house was paid off would you borrow against it to invest? If the answer is yes then keep your mortgage. If the answer is no then pay off your mortgage as fast as possible and don’t look back.

    • Sundeep January 25, 2015, 8:20 pm

      Two good posts/points Stan, keep living the dream!

    • The Accumulator January 26, 2015, 6:35 am


      You’re essentially right in your logic, but there is a clear difference. If you invest whilst paying off the mortgage, there is an end game. If you borrow against an already paid off house to invest, there isn’t.

      In my case, because the circumstances are favourable, I’m delaying the pay-off, but there is a clearly defined point where I say, “I’ve done enough, and I’m not taking that type of risk anymore.” The other scenario is open-ended (as stated) therefore the goal and end-game are undefined and the risks of matters spiralling out of control are greater.

      • David January 28, 2015, 6:14 am

        The Accumulator,

        You sound like a market timer, if you’re interested in choosing the right time or the wrong time to allocate money to borrowing or investing . As John Bogle says, he doesn’t know anyone who even knows anyone who has predicted the market consistently.

        I prefer having a long term plan, and sticking to it. That way, I never have to speculate.

      • Raj February 4, 2015, 6:27 am

        Any kind of leverage is never good, however well you try to justify it to yourself and others.

        We often look at 1929 as the worst possible decline, but who’s to say something uglier in the future can’t occur. History doesn’t repeat itself, but it rhymes. Such a scenario would crush anyone who dared to leverage. It took many years for the markets to recover. And multiple asset classes wouldn’t have helped much.

  • Dave January 22, 2015, 11:28 am

    We had $25K left on our mortgage balance (5.75%–was a vacation home purchased with a portfolio loan, but will be a permanent residence when we FIRE this Fall) I took a USAA Credit Card convenience check (12 months @ 1.9% interest and $75 transaction fee) and paid off the note. This let me drop the overpriced homeowner’s insurance since I don’t care about the existing structure and have no possessions in the place and I no longer have to escrow taxes. Over 12 months, I should save about $800 in mortgage interest and $600 in homeowner’s insurance. The CC interest will run me about $250.

    • Alex January 26, 2015, 7:01 pm

      Hi Dave… I am interested in doing this “convenience check” method via USAA… can you tell me which of their credit cards this was with? I am a USAA member and this sounds really good to me…

      • Dave January 30, 2015, 9:07 am


        I did it with the USAA World Mastercard. go into “my accounts” then “my services”, then, “order convenience checks” and you’ll see the offer there.

        Get a promotional rate of 1.90% APR until Jan. 01, 2016, on balance transfers and convenience checks that post to your USAA MasterCard account between January 1, 2015, and Feb. 15, 2015.
        After Jan. 01, 2016, your APR on these balances will be 7.75%. This APR will vary with the market based on the Prime Rate.1

        Each balance transfer and convenience check has a transaction fee of just 3%, not to exceed $75.

        Chase Slate also has a pretty good one. 0 balance transfer fee, 0% APR, but the limit was $15000. the USAA offer is only limited by 95% of your credit limit so it worked better for me and was still significantly better than the mortgage interest + homeowner’s insurance so i went that route than than trying to split it up.

  • Brian January 22, 2015, 11:38 am

    Does it make sense to liquidate a 401k to pay off house? It’s a four family I live in one unit a rent the other three. If I paid it off i would live rent free and net $1000 per month tax free. I know I would have to pay income tax and early withdraw penalty.

    • rpr January 22, 2015, 2:34 pm

      In general, I would think that it would be a financially bad idea. Depending on the tax brackets you could lose almost half of the 401k withdrawals to taxes and penalties.

    • PeachFuzzStacher January 25, 2015, 3:11 pm

      I agree with rpr. Don’t liquidate. If anything, taking a loan against your 401k might be a thought. As long as you pay it back, you don’t get hit with anything other than theoretical opportunity costs, but stocks are high right now anyway, so…

  • Stephaniekb January 22, 2015, 2:12 pm

    We effectively split the difference on the pay-off vs. investment question when we recently sold one of our investment properties. The settlement amount was just about the same as the outstanding balance on our home mortgage. Rather than pay off the whole thing, we took a large chunk and asked for a loan modification from our lender. The advantage is that we keep our 3.5% interest rate on the existing balance, and lowered our payments such that we could afford to pay the mortgage on one salary while also keeping a very large amount available to make some other real estate investments. We still have a 27 year payoff timeframe, but we don’t expect to stay in this house that long. Our new, lower payment takes effect in Feb 2015 and we’re planning to funnel the $500/month savings into some other investments, probably split between 401k and taxable.

    On a side note, we also have another rental property which has a mortgage at 4.6%. I advocated for paying off that mortgage, which would have left a balance of only $50K on that one, instead of our primary residence, but psychologically my husband prefers to think of the tenants as paying off that mortgage. Just an example of how math is sometimes trumped by emotion.

  • CAtoTX January 22, 2015, 3:05 pm

    We paid off the mortgage in 2007…it was kinda neat because I had taken stock options my husband received from the tech boom of 1999-2000, exercised them and sold them at the super-inflated price, and immediately invested in Berkshire Hathaway which was depressed at that time. So BH tripled…and we sold a single A share and paid off the $150K mortgage. So I can say I paid off my mortgage with a single share of stock.
    Back then the interest rate was higher. Since then I got a divorce but kept the house, and when rates dropped to 3.125% I re-mortgaged the house and bought a rental property with the cash. Now the interest is traced to the rental home so it’s written off against the rental income. I’m still paying it off early though.

  • ickabug January 22, 2015, 4:29 pm

    I heard a great story about a boss and a couple subordinates in a meeting. The boss was assigning some sort of distasteful task. The subordinates were weakly protesting. The boss hammered his fist on the table and bellowed, “How much is your mortgage!” I can’t think of a better reason not to have one.

    We paid off the house a little while ago and my wife quit her soul sucking job at the beginning of the year. Me, I work a bit because I enjoy doing stuff. But no one is going to evict me, foreclose on me or threaten me with job insecurity. Worth every penny of foregone investment appreciation.

    • rpr January 23, 2015, 4:28 pm

      Just curious: How is this any different from having the amount of the outstanding mortgage in savings and investments?

      • ickabug January 24, 2015, 12:22 pm

        Fair question. Not different until you look at my history. Once got evicted because land lady decided she wanted her daughter to live in the house instead of me. Bought a house because I never was going to have someone kick me out of a house again. Got laid off during a couple recessions. Watched my investments plunge at the exact time I would have needed the money if I suddenly had to make mortgage payments. Investments have come back strong after each recession. Never had to worry about making a mortgage payment when money was tight. Basically I operate with the idea of making hay while the sun shines because for me the sun doesn’t always shine.

        I should also add that we dumped money into every tax advantaged savings that we possibly could. After maxing savings we pre paid the mortgage as fast as we could while I was making good money. Then when I wasn’t making good money it wasn’t a crisis. The steps we took years ago have enabled us to be financially independent now and I think paying off the mortgage was an important step in the overall plan.

  • Fancyness January 22, 2015, 5:04 pm

    Nice job Mr. Toque!!
    I’ve been contemplating paying off my mortgage after recently selling two rentals at a good profit….more or less a once in a life time windfall of cash. My spouse and I are a little over 1 year away from FIRE with all other debts being paid off. And our expenses are quite low, but there are three reasons why I am sitting on cash waiting for a stock market correction before investing in the market which I believe will return more than using the money to pay off our mortgage.
    I’m not usually a market timer but I am now because 1) since the great depression, the average number of years between US recessions is approximately 4.5 years and it has been 5.5 years since the great recession ended so we’re due, 2) stock market indexes tend to tank before a recession and during recessions, 3) world economies are slowing. So, unless this time is ‘different’, the US is likely to experience a recession soon which is why sitting on cash is my strategy. I wouldn’t bet against the US in the long run but right now, I think stock indexes are likely to go lower thus creating an opportunity to make above average returns for those who have cash at the bottom. Having said that, I can’t wait to pay off our last debt!!

  • Wade January 22, 2015, 6:02 pm

    We paid off our mortgage in mid-2007. It was the smartest move we’ve ever made. We piled up our pennies and made significant changes. We now thrive on a single income. My wife works and I am a SAHD (Stay at home dad). We continue to save. I focus on keeping our spending in check. Hopefully my wife can join me in “early retirement” when she is ready to make the leap.

  • Roger January 22, 2015, 7:38 pm

    While I understand the emotional relief behind a mortgage payoff, I have to disagree with the group of people that use the argument of “if I lose my job, I’ll be in a better position with a paid off mortgage.” Obviously, this is a true statement, but when you’re unemployed, cash is king. If things hit the skids in the middle of an aggressive mortgage payoff, you still owe the same monthly amount, and a cash out refinance would be costly and take time. If instead you have a healthy brokerage account, you could cash out sufficient funds that same day. To put it in to perspective, let’s look at a semi-concrete example.

    John borrows $200,000 @ 3.75% – 30 Year Fixed
    He pays $750/month extra on the mortgage, and he pays it off early.
    After 150 months, he has no mortgage debt and no investments.

    Jeff borrows $200,000 @ 3.75% – 30 Year Fixed
    He sends $750/month to an investment account, and he only manages to generate a 3.75% average return on the money.
    After 150 months, he owes ~$143,000 on the mortgage, and he has a brokerage account with ~$143,000 in it.
    He can pay off his mortgage the same day as John, or he can continue to let that money grow and pay his mortgage on schedule. He also realized the maximum interest deduction on his tax return every year up to this point, but he would also pay taxes on his dividends/gains, so we can cancel those out in this simplified example.

    The big difference here: OPTIONS. Jeff has options. If John and Jeff were both laid off after 75 months, John has to come up with money to continue paying his mortgage and other expenses, or the bank can take his house, regardless of the accelerated payments. Jeff owes more on his house than John, but he has ~$63,000 he can access within 24 hours. In all honesty, who is panicking more right now?

    I know the immediate response is “yes, but you can’t guarantee 3.75% in the market!” That is absolutely true, but if the average investor cannot average an extremely modest 3.75% return in the market over 12.5 years, the U.S. economy would be in very bad shape, and we as investors/workers would be in similarly bad shape.

    Just my opinion on this one.

    • Scott January 23, 2015, 7:12 pm

      Unless you have to bail some money out of your brokerage account at a time when there is a market crash – forcing you to sell low – not good. Market crashes 0f 20 – 50% drops do and will happen

      • Roger January 26, 2015, 11:34 am

        Last time the market dropped 50%, housing went on a fire sale. People with paid off houses who wanted to sell… sold at a big loss. Not much different than selling stocks at a loss, except the fees and headaches are 10X higher when selling a house. Those who wanted to refinance had trouble getting the value they wanted/needed, and if they qualified, it took time and money to close the loan.

        To reiterate, I’m not arguing against paying the house off, as I do believe it be an excellent way to decrease monthly expenses. I’m arguing against aggressive repayment, opposed to a lump sum payoff once all the money is in place, as the latter gives you options if times do get tough.

  • Don January 22, 2015, 8:28 pm

    In all the articles I’ve read on whether or not to pay off a mortgage one thing always seems to hold true. The folks that have paid off the mortgage do not regret the decision. No one ever complains Missing a few bucks return when the market went up.

    For me the deciding moment to pay off our debt early was when my 10 year old son asked me if we had a mortgage. (I know, it’s a strange question for a kid to ask:-). I said yep, lots of people do. Then he asked why we didn’t just pay it off. After 10 minutes trying to explain I realized my MBA-speak wasn’t convincing either of us. Decision made. The house is now paid off. Thinking about this thread I don’t regret the theoretical lost upside one bit. There is a quiet confidence that comes with living debt free.

    Now I need to figure out a way to explain away why a scotch now and then is good for adults….:-).

    • rpr January 23, 2015, 4:33 pm

      You wrote:
      “No one ever complains Missing a few bucks return when the market went up.”

      What if the few bucks amounted to $10K, $50K, or $100K over the term of the mortgage? If I had $100K more, I could FIRE 3 years earlier.

      • Roger January 26, 2015, 11:37 am

        The reality is, most of those people haven’t run the numbers on the situation. They just pat themselves on the back for what *feels* like a savvy financial move.

        Like rpr just said, if you showed them a balance sheet that showed them with $100,000+ more money if they had kept the mortgage a little longer, I’d imagine the number of people with regret would increase from “no one.”

  • Nigel January 22, 2015, 8:36 pm

    Our situation is unusual in that we’ve never had a mortgage – in our twenties we lived in Japan during the tail end of the boom times when the ten thousand yen notes were pretty much growing on trees, and when we came back to the US we had just enough to buy a small house for cash. I agonized over it a bit, but in the end it boiled down to an emotional rather than rational economic decision, as many here have noted. I couldn’t get away from the idea that taking out a mortgage when we were already fortunate enough to have the cash was basically just borrowing money to buy stocks, which I just couldn’t stomach. Never really regretted it – for twenty plus years we’ve never had to worry about mortgage payments, which is a freedom that’s hard to take for granted – and we could send that much more over to Mr. Bogle every month.

    Off topic but I can’t resist sharing – went in to talk to the boss today to announce that I’ll be retiring in one year, at the ripe old age of 50 (I’m in academics and we have to decide these things way in advance). Was literally shaking while walking down the hallway for the meeting, it reminded me of jumping off the high diving board as a kid. Had to suppress the urge to let out a Tarzan yell on the way back, though, after the deed was done. What a feeling.

  • Cassandra January 23, 2015, 2:01 am

    Great article, which raises a more fundamental question in my mind: to buy, or not to buy? As a threshold Gen X/Gen Y professional couple with 2 kids living in the Washington, DC area (where the real estate market never even crashed, and remains *outrageously* expensive), my husband and I were raised to view homeownership as a sturdy long-term investment, and as a representation of “the American Dream.” But now we are wondering if that dream was actually just a scheme! We bring in a combined income of around $200K/year, which would be more than sufficient anywhere but DC, where a 1200s.f. “starter” home in a good school district (and near public transport/bike-able to downtown) will run you $700,000 or more. We contribute to our government retirement plans up to the matching level (5%), funnel an additional $750/month into mutual funds and IRAs, carry no revolving debt, and have already purchased a pre-paid college plan for our son (currently working on our newborn daughter’s). We own a very rentable, very commutable 2br condo bought on foreclosure that we are trying to pay down early. We are on the right track, but always want to do better – and the question of homeownership plagues us. We long to be settled and have a homestead, but dread the debt! Any advice, MMM?

  • casserole55 January 23, 2015, 8:32 am

    We up-ended standard financial advice 20 years ago and are very happy with the results. We lived in a dormitory at a boarding school for 5 years. This allowed me to be home until my son went to kindergarten. With the money we saved living rent free during this period, we put 50% down on a new $170,000 1600 sq foot house in New England. The 30 -year fixed mortgage was $525 per month. Five years later, we refinanced to a 15 -year fixed mortgage with a monthly payment of $643. Four years ago my husband was laid off from teaching – he started a voice studio and became semi-retired. Last April, I received an inheritance, and we paid off the mortgage. On Dec 31 I retired. We love our paid-off house, we love our life together, we love our financial independence!

  • Huck January 23, 2015, 8:33 am

    Sure sounds nice, but feels unachievable. Even if we paid an extra $1,000 per month we’d only shorten our mortgage to 2028! That is so looong! (but yes, still shorter than the 2044 payoff date). I’ll stick to investing extra money and rather do a lump payment.

    • Eldred January 23, 2015, 8:46 am

      If I could do an extra $1000 per month, my mortgage would be gone by 2022. But $1000 extra doesn’t happen very often. With a more reasonable(but still difficult) $500 extra, it pays off in 2025 when I’m 62. And yes, that’s still quicker than 2044.

  • Dan January 23, 2015, 10:22 am

    We recently paid off our mortgage. If you’re more conservative, you’ll feel great about doing this. The case for “put the money in the market because you’ll make more” is true, BUT you have to have balls of steel to ride out a downturn in the market. Not for us.

    Even though we could done it earlier, we did wait a while. We refinanced and paid down some of the balance a few years ago with a bonus I got and then continued to build our Vanguard portfolio. When it came time to rebalance the portfolio, I viewed paying the mortgage as a fixed income play – not exactly a deflation hedge like bonds but nontheless a nice way to get a guaranteed return. We are now using the money we used to allocate to the mortgage every month to Vanguard. Cash flow remains the same but now we are paying ourselves that much more!

  • jeff January 23, 2015, 12:18 pm

    One of the most satisfying financial moves we ever made was refinancing to a 15 year mortgage. Not so much for the lower interst rate (though that helps), but for the accelerated payoff. For now, we’re on track to pay off the morgage the year my youngest graduates from high school, rather than 13 years later. Our payment didn’t go up A LOT, about $300 which keeps the money from burning a hole in our pockets. Here’s the basics: instead of 2/3 of the payment going to interest, now 2/3 goes towards principle every month.

    Why is it satisfying? A few reasons: The anticipation of 13 extra mortgage free years and watching the principle owed drop like a rock every month. We could have put even more to retirement investments, but we concluded we were doing enough. Its funny, but watching the balance drop is more satisfying than watching the retirement account balance go up. Its more immediatly emotionally rewarding. The interst rate is too low now to bother with extra payments, but who knows? Maybe when the balance is $30-50k, I’ll say “screw it” and just pay it off…we should have that much saved up by the time the balance get that low.

    Last thought, it is more tangible to the wife too…she pays some attention to the retirement savings, but this just puts a smile on her face every time I metion “the mortgage just dropped below X” (usually a nice round milestone figure)

  • Kayla January 23, 2015, 12:22 pm

    Very inspiring! Thanks for sharing this story and where you are a year later. Now to get rid of my debts!

  • Alex January 23, 2015, 4:11 pm

    Being debt free is nice, but I personally would not choose to pay off my mortgage in lieu of other investments completely. The last thing I would want is to have almost all my wealth tied up in such an illiquid asset as a house. I would say that I am willing to have a certain percentage of my wealth in my home. Currently I feel 25% feels right. As my wealth grows I pay off more of my mortgage.

    Another option since interest rates are so low is to figure out when you plan on retiring and just paying enough extra every month so that when you retire you are also debt free. This allows for increased growth but still stay on track for early retirement.

    Another consideration is that you really don’t see the benefits of paying extra into a mortgage for many years until the entire debt is paid off. You still have the same monthly payment if you owe 100% or 5% of your loan. Therefor it may be wiser to invest the extra payments into a separate “mortgage fund” When the value of the fund minus taxes hits the mortgage value, you sell the fund and pay off your debt. This strategy gives you increased growth and an earlier mortgage repayment as compared to just paying extra into the mortgage by itself.

  • OrangeSnapDragon January 23, 2015, 5:08 pm

    Fiscally ideal vs Gut/morality

    Short version – bought our house for 25k – not livable – 100’s of hours of sweat equity and about 8k of materials. So far we are down to 20k on the mortgage (we have owned it for 2 years) We both got much better jobs and are pulling 55k gross together (for us that is rich!) If we go the route of paying off the mortgage it will be gone by August 2016 (with some help from an 8k lump sum being thrown on it) and then on to tackle the 90k of student loan debt ranging from 2.8-6.8, which we may refinance.

    We are on a land contract with a relative and actually pay 0% in interest (thanks to said relative who pays the 4% on it). Logically we could continue to pay our minimum of $500/month on the house and start dumping money at the student loans even if the relative stopped paying the interested. Fiscally speaking it’s a better plan. However, we want to own this house and relieve the relative of that payment.

    I think sometimes it’s easy to focus making your financial plans 100% efficient, but sometimes it’s also healthy to look at what will make you happier in the long run. For us, I think it is paying off the house first. But, I am open to different ways of thinking!

    Great article btw, I will be going back to read for Frugal Toque!

    • ILiveInTaxCollectorCountry January 26, 2015, 4:26 pm

      You may want to pay off the 6.8% first and pay the interest savings to your relative. You can give her anything between 4 and 6.8% where she only has to pay 4%. Win-win.

  • alistair January 23, 2015, 5:40 pm

    The comments make interesting reading.. I’m working hard at paying down my mortgage (but might move up to a bigger house soon) for the UK the idea of a 3.5% fixed for 30 years is an unimaginably good deal and with the tax breaks people are talking about it’s a wonder there was a drop in US prices!

    Having said that we have an awesome product, the Offset mortgage, which basically takes your savings accounts and current accounts inthe bank and counts this against themortgage value, so you only pay interest on the net difference. It’s a great incentive as every £ i keep in my account longer knocks off some of the interest.. with the advantage that the cash isn’t locked into the mortgage, I can move it out any time if i need to… my interest payments are reducing by about £5 per month


  • TROY January 23, 2015, 9:15 pm

    What is the name of the company you use for your home insurance?

  • Frugal Bazooka January 23, 2015, 10:36 pm

    Congrats F Toque and anyone else who is able to pay off their mortgage early. Like some of the posters, we fall in the category of people who don’t have a lot to gain, mathematically speaking, by paying off a 3% mortgage. Our mortgage is not free, but our monthly payment is so damn low and the amount of the payment that goes to interest is small…it just doesn’t make sense to get rid of something that seems so right. Most of our investments offer much better returns and the money is better used in that capacity…and the interest off, no matter how small of an amount remains a significant incentive to many people.
    We are contemplating a refi to a 15 year mortgage just because the rates are so low and the payment would still be relatively low, but we’ll see how the math works on that before jumping in.
    The one concession we make to lowering the principal is also a long time family tradition going back several generations. The way it works is we take any bonuses, large gifts or unexpected windfalls during the year and immediately apply it to the mortgage principal. A few family members have been able to pay off their mortgages using this low impact method, but for us it’s just nice to see the numbers fall a little faster.

  • Colin January 23, 2015, 11:26 pm

    Will somebody please check my math and logic here? Let’s assume a time horizon of 15 years (a typical mortgage term) and a 2% inflation-adjusted net rate on a mortgage, and a 7% net return if you were to invest in an index fund. Each $1 you invest turns into $2.75 after 15 years. Each $1 at 2% rate over 15 years has a future value of $1.35. And you can tack on however many zeros you’d like there to these present and future values. I know that paying off a loan feels good, and feelings are certainly worth something, but if my math is correct, and the market doesn’t stray too far from historical long term average, then these could wind up being some pricy feelings.

  • Maxim Ч. January 24, 2015, 12:11 am

    Do not worry, Mr.Frugal Toque! Our evil leader Harper has said that he will raise our TFSA contribution limits to $10 000/year.

    I cannot wait! One of the few things he has done right! :-D

    • Scott January 25, 2015, 6:16 pm

      He has done a few things right. He is certainly better than the alternatives.

  • Mr. John Benedict White January 24, 2015, 6:36 am

    Mr. Frugal Toque

    Every now and then, I used to download a spreadsheet that could forecast when my passive income would exceed my cost of living. The spreadsheet considered inflation, Canadian tax rates, and savings accounts (i.e. TFSA, RRSP) and more. This spreadsheet has since been withdrawn and I never kept a copy.

    Is anyone willing to share, or post a link, to such a spreadsheet? (without personal info of course!)

  • Scott January 24, 2015, 7:05 am

    I could never argue with what an amazing emotional feeling of freedom it must be to have your house mortgage paid for early and I can’t wait for that day. However, my choice and plan is to maximize wealth through leverage.
    In life, we have limited time and limited extra free capital. The sacrifice to paying off the mortgage, (all of your extra free capital, and 5-7 years of time to pay off the house) for me is too big a price to pay.

    Considering I’m planning on retiring in 15-years, at age 59.5 and rates are the lowest in history; this gives an opportunity to use my time and capital to maximize wealth.

    My plan: (15-years)
    #1. Lived in house #1 for 7-years on 30-year at 3.75%. Rented it out, the rent profits are paying down the loan to a payoff date of 15-years.
    #2. Put 20% down on 15-year fixed at 3.25% to buy a high-rise condo. I have to live here for 4-more years until my name comes up on the HOA rental list to qualify to rent it out. (they only allow 25% rental units in my building)
    #3. Put 20% down on another condo on a 10-year fix rate. Hopefully rates will remain low.

    All the while I’m able to max out my 401k and Roth IRA. When I’m 59.5, I will to have all three properties paid in for and the full compounding effect of the retirement accounts over 15-years. I’m not sure if I could accomplish building that much wealth without the power of leverage and using 5-7 years of time and capital to pay off just one house.

  • John G January 24, 2015, 7:05 am

    This is the subject of my biggest emotional/rational struggle! I just finished paying off the mortgage because I figured out a quick timeline to do it and really wanted to be debt-free, but the entire time I was aware of the long-term expected market gains that I was giving up. The fact is that it feels unbelievably great to have the house paid off and know that I will never have to worry about a monthly housing payment again. It’s not the rational move, but it is a good feeling. And I got the added benefit of probably moving more quickly to Mustachianism in the effort to hammer away at the mortgage. Regardless, it is win/win. If you’re disciplined and committed, invest the extra in the market. If you prefer security, kill the mortgage. Either way, you’re going to be in good shape!

  • Canuckgirl January 24, 2015, 9:11 am

    Mr Frugal Toque, I enjoy your posts both as a Canadian and because your timeline seems to match up quite similarly to ours. We also are celebrating a year mortgage-free. I would love more info on what your plans are once you max out your RRSP and TFSA space – a point that is also approaching quickly for us. We are not investment experts by any means and are not quite sure what to do once there is no room left in these other options. Hoping you’ll post something on this soon!


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Take a look around. If you think you are hardcore enough to handle Maximum Mustache, feel free to start at the first article and read your way up to the present using the links at the bottom of each article.

For more casual sampling, have a look at this complete list of all posts since the beginning of time or download the mobile app. Go ahead and click on any titles that intrigue you, and I hope to see you around here more often.

Love, Mr. Money Mustache

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