In the LearnVest Personal Stories series, everyday people share the details of their money lives, discussing the individual choices they’ve made and how it’s impacted their financial journey.
Today, one man shares how he's tackling one of the biggest debts many of us will ever take on: a mortgage.
August 1, 2012, will forever be a day etched in my memory.
It was the day my lifelong dream of being a homeowner finally came true, and I moved into a beautifully renovated three-bedroom bungalow in the suburbs of Toronto, Ontario.
I purchased my home for $425,000, and through all my years of hard work and financial discipline, I was able to make a sizable down payment of $170,000, which left me with a five-year fixed rate mortgage of $255,000 at 3.04%.
Six digits of debt are intimidating, especially when you’re a single homeowner. But at 29 years old and just 15 months after buying my house, I’ve already paid $100,000 off my mortgage ... and I plan to pay off the other $155,000 of my mortgage in two years.
How did I do it? Let me explain.
A House Starts With a Dream
Ever since I was 10 years old, I’ve dreamed of being a homeowner. That's when I was sitting at the dining room table at my mother’s house and heard that my aunt, who had lived paycheck to paycheck and rented an apartment her whole life, had been laid off from her job after 20 years and would have to move in with my grandmother. There was no way I ever wanted to find myself in that situation, middle-aged and unemployed with no savings in the bank.
So I started saving toward my first home even before I graduated from university. While in school, I worked three part-time jobs (meat department clerk at a supermarket, administrative assistant at my university’s MBA office and freelance writer), earning over $10,000 annually. Instead of taking summers off, I worked full time as an administrative assistant in a government office, earning another $10,000 per summer, enough to cover the next year’s tuition. After a 60-hour workweek I was exhausted, but I knew I wanted to graduate debt-free.
I’ve always been a saver, so frugality was second nature to me. I purchased my textbooks secondhand, cycled and rode public transit. I limited myself to coffee once a week with friends and only went out when it benefited my career. Food is a major expense for students, so packing my lunch was a no-brainer—I estimate that saved me at least $5,000 a year. I graduated university debt-free, with a net worth of $70,000.
(I should mention here that while universities are similar to those found in the U.S., post-secondary education is a lot more affordable here in Canada—while a private university could cost $200,000 in the U.S., the cost of a similar four-year degree in Canada would be more like $80,000.)
After eight months of working in a supermarket post-graduation, I was fortunate to land a full-time job in the financial industry, earning $32,000. I opened an investment account and started contributing $250 weekly toward investing in mutual funds to save for my home. I was a disciplined saver—even after graduation I continued to live like a student in the basement of my mother’s home, paying $600 a month in rent. Through my full-time and part-time jobs and my freelance work, I was able to save an additional $110,000, bringing my net worth to $180,000, in only two and a half years.
First-Time Homebuyer ... and First-Time Landlord
The most difficult part of becoming a homeowner wasn’t saving toward my down payment—it was purchasing a home in a seller’s market. After nearly two years of house hunting and the same number of failed offers, I started to wonder if I should put my dreams of homeownership on hold. I was in danger of being priced out of the market as home prices climbed faster than my savings.
In the September after graduation, even before I landed my salaried job, I was sitting on the couch at my parents' house, watching HGTV's Income Property with my mom like I did every Thursday night, when I had an idea: To achieve my dream of owning a home and paying down the mortgage as soon as possible, I would follow in the footsteps of host Scott McGillivray—who lived in the basement of his first house for eight years to get financially ahead—and rent out the main floor of my future home. Now I just needed to find that home!
After three years of house hunting, I finally found it in June 2012. It was love at first sight: a newly renovated, one-story bungalow with a basement apartment, in a great location near Lake Ontario, only 15 minutes from my parents. I was fortunate to avoid what I dreaded most, a bidding war, as the seller was moving to Alberta and wanted to sell quickly. The seller accepted my offer of $425,000, and two months later, I rented a moving truck and moved in my worldly possessions. After a grueling day of moving and unpacking, I stood in the living room, admiring my new house and staring out the bay window. The journey of becoming a homeowner was tough, but at that moment, it was well worth it.
I hadn't abandoned my original plan: I would live in the basement and rent the main floor in order to pay off my mortgage. My real estate agent was nice enough to help show my property to prospective tenants in July 2012, before I even moved in, and soon I had rented out the house. I've been very lucky: My tenants, first a young couple around my age and now a family, have been great.
"After three years of house hunting, I finally found it. It was love at first sight: a newly renovated, one-story bungalow with a basement apartment I could rent."
Paying Down My Mortgage—at All Costs
I currently work as a pension analyst at a pension consulting firm, earning $48,825 a year. On the weekends I work part time at a supermarket, earning $10,000 a year. I also have a freelance writing business, and 2013 was my most successful year ever—I earned over $20,000. I currently rent the main floor of my house for $1,550 per month.
My family and friends often wonder why I am so determined to pay off my mortgage so quickly, since it’s technically “good debt.” Besides my mortgage, I’m debt-free. Paying down my mortgage provides me with a guaranteed rate of return (unlike the stock market), and as a single homeowner, if I ever lose my job, I won’t have to worry about my mortgage—and the rent from upstairs will be more than enough to cover my household expenses.
I've taken full advantage of mortgage prepayment privileges (many closed mortgages allow you to pay an annual, penalty-free percentage ahead of time, to cut down on interest). I've doubled up my mortgage payments, paying $850 weekly, made lump sum payments whenever I received checks for freelance writing income and increased my mortgage payments 15% each year. Last year I managed to max out my mortgage prepayment privileges in only four months.
When it comes to spending money, I’ve continued to be frugal. By cycling and taking public transit to work, I’ve been able to save over $6,000 a year, which is the real cost of owning a car, according to personal finance columnist Rob Carrick. I don’t have a mobile phone (I use MagicJack Plus, an internet-based telephone service, instead) or cable (I stream TV shows via online Canadian websites like www.cbc.ca and www.ctv.ca), which saves me about $1,800 annually.
Today I have a net worth of $450,000, which includes my house, investments, emergency fund and retirement savings. If all goes according to plan, I will be mortgage-free by age 31. For me, that means the weight of the world will be lifted off my shoulders, and I’ll have the freedom to pursue my other passions—like freelance writing full time, or penning a personal finance book to share my experiences with others—and be able to start saving toward my next goal: retiring early at age 55.
Sean Cooper resides in Toronto, Ontario. He is a personal finance freelance writer and blogger who writes about pensions, retirement, real estate and mortgages.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies. LearnVest, Inc., is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company.