First person: Refinancing twice to pay off our mortgage early

'We used refinancing not to extend our indebtedness, but to buy our freedom'

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First person: Refinancing twice to pay off our mortgage early
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The country home as it looked when we purchased it in 1996. Its value at the time: $145,000 (because …

Many see refinancing as a way to lower their monthly payments so they can have more spending money from each paycheck. Not us. We refinanced twice to shorten the term of our mortgage in order to pay it off sooner, achieving debt freedom before we hit retirement. Here's how we became mortgage-free in just 14 years by refinancing.

Purchasing our home

In 1996 my teacher-husband, John, and I left the city to try country living. We had four children ages 2 to 8, and were determined to live on one income so I could stay home. Mortgage rates were around 6 percent, and we had found our dream home on a single acre. We were, as John said, "so happy."

As the days ticked by during escrow, we watched with chagrin while the rate climbed right past 7 percent, locking us in at 7.375 percent. John's eyes bulged over the financial disclosures; in 30 years, the $130,000 mortgage would cost us $312,000—more than twice the price of the home. We consoled ourselves with the thought of always paying extra principal. Our monthly payment: $997.

Then life happened. I became pregnant with Child No. 5 the first month we took possession. John's paycheck unexpectedly dwindled by $300 a month when the school district began double-dipping for both Social Security and state teacher's retirement. Precious little was left over for extra principal.

Refinancing: A tool for debt freedom when used wisely

Then we learned about refinancing. As rates steadily dropped, we were able to refinance not once but twice, dropping first to 5.75 percent in 2001 and finally to 4.25 percent in 2003 with monthly payments at $1,116. We kept our monthly payments high (even higher than they had been with the original mortgage) and opted for a shorter-term loan, shaving away 16 years of interest.

Paying off our mortgage early

Many homeowners refinance in order to lower their monthly payments so they have more spending money. This was not our goal. Such a move might have kept us in debt that much longer and cost us more in interest. Our children might have been long gone or needing money for college with us still strapped for cash; we would have been approaching retirement while still in debt. As it was, we were in our early 50s when we paid off our mortgage. Our goal was to free ourselves up to invest our money in our home and our family. Whenever we had extra cash, we threw it at principal.

We made our final mortgage payment in 2010. While our original mortgage was designed to be paid off in 2026, we paid for our home in just 14 years and ultimately saved an estimated $160,000 in interest.

How we did it

Call it serendipity, providence, or luck—we had it, but we also made a few good choices that helped.

1. We worked hard and still do. John took moonlighting jobs for additional income and performed all home repairs and renovations himself. I was frugal, cooking from scratch and training the children to share in household chores.

2. We stayed out of debt for the small stuff. No lingering credit card debt, expensive vacations, or new vehicles. Our favorite entertainment was our family. We used refinancing not to extend our indebtedness, but to buy our freedom.

3. We thought outside the box. For our second refinance we approached the same financier and kept it in-house, saving them costs and decreasing our own.

Life with no mortgage

Since paying off the mortgage, we have added more than 500 square feet of space; remodeled the kitchen, laundry, and bathroom; installed a new roof; vacationed in Hawaii for our 25th anniversary; bought a used van; helped pay for our children's weddings; and even replaced our dry well for $12,000. We did it all with cash and credit cards that we paid off within a few months.

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