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As I mentioned in the last article, there were many reasons why I went so long without posting to this blog. Many of them would be just simply excuses and I won’t share those with you. The fact is that I could have kept up with my normal blogging routine if I had been more persistent and focused. I didn’t. What I do want to share with you are some of the exciting life events that have happened in the last four months. In many ways, the last four months has seen the accomplishment of a number of significant goals in my life.

OLYMPICS

Back in the late 1990s I set a goal of going to every Olympic Games starting in 2002. I took the goal, wrote it down, and worked toward achieving it. The Olympics in 2002 were in Salt Lake City. The fact that it was only a long day driving from where I lived (western Canada) made me believe that I would achieve it. I took photos of Salt Lake City and the Olympic logos and put it up on my goals poster board. I focused on achieving that goal.

And I made it. I went to the Olympics in Salt Lake City and had a great experience. As I mentioned, my goal was to go to every Olympics, so I continued on and went to Athens (2004), Torino (2006), and Beijing (2008). While my goals have changed and I no longer feel I need to go to EVERY Olympics, the 2010 Olympics in Vancouver were extra important. I really wanted to experience the Olympics in my home country.

As a professor, the Winter Olympics are a little harder to make work. It is in the middle of the semester. In order to go I needed permission from my Dean, and I needed to arrange for guest speakers to teach the class. Thankfully all of that worked out and I was able to be at the Olympics for 8 days in February. One unique thing this year is that I stayed in Whistler, the mountain host venue for the Olympics. That meant a different atmosphere than I was used to, but also a few different events. Tickets were a little harder to come by than in past Olympics, however I was able to attend Cross Country Skiing and the two days of competition for Skeleton. It was great to be at a home Olympics, and especially to witness a gold medal for Canada on home soil!

PHD

Another goal of mine has been to get my PhD. You may recall that last summer I focused in on writing the GMAT. The GMAT is the entrance exam required for graduate studies in most business schools. I scored very well on my GMAT, and spent the fall applying to different schools. In the end I was accepted and offered funding at three top schools. The month of March involved trips to visit each of the schools as I worked through my decision making process.  It was challenging as I was choosing between good options and looking to make a choice for where we would live for the next four to five years.

In the end I choose Michigan State University. I am very excited about this opportunity. I will begin studies in September, but we will be moving at the end of June. (If you live in Michigan let me know, I look forward to connecting with more readers!)  Over the last two months we have sold our house in Canada, and purchased a house in Michigan. Thankfully this is allowing us to achieve another goal.

DEBT FREE

As a result of this move we are going to be completely debt free. Over the past few years we had aggressively paid off our debts and for some time now have been down to only owing our mortgage. We had even been paying off large chunks of our mortgage. (Read about how we paid of 15% extra on our mortgage here.)  On top of this, we are selling our home in a great housing market and moving to a market where prices are low. Because of these two reasons we are purchasing our new home with cash. It is going to be a great relief to be a student and have no housing payments aside from property tax and insurance.

So there you have an update on my life. Three big goals; three exciting accomplishments. We feel very blessed and are excited as we move to this next phase of life.

What are your goals? Remember, everything starts with a goal. Determine what you want and go for it.

My recommendation: Set the goal of getting debt free. This is a goal for everyone. Not everyone wants to go to the Olympics. Even fewer people want to do their PhD. But everyone can and should work towards being debt free – more on this next article!

Written by:

Danny Gamache

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One of the achievements from last year that my wife and I are most proud of was the fact that we paid off an extra 15% of our total mortgage amount. We are about to make another extra payment as we continue towards our goal of being completely debt free.

This is certainly something you can achieve as well. Here are seven ways to pay off your mortgage more quickly.

1. Make a bigger down payment

Naturally, the larger your down payment the quicker you can pay off your home and the less interest you will pay. Take for example a $200,000 home with a mortgage at 5% interest over a 25 year period. There is a significant difference between making a 10% down payment and a 20% down payment. The 10% down payment results in $135,000 in interest. The 20% down payment will result in $120,000 in interest charges. That is a total of $15,000 extra you save pay making the larger down payment.

2. Get a shorter amortization period

The shorter the amortization period, the less you will pay in interest, and naturally the shorter amount of time you will have to pay off the debt. Take the example above, of the 25 year mortgage with a 10% deposit. As mentioned you would pay a total of $135,000 in interest. If instead, you reduced it to a 20 year mortgage you would only pay $105,000. If you went even further and had only a 15 year mortgage the interest charges would go all the way down to $76,000. That means nearly $60,000 is saved by having a 15 year mortgage instead of a 25 year mortgage. Certainly that means your monthly payments are higher – but not by as much as you might suspect. The difference is only about $400 each month.

3. Pay every two weeks

By breaking up your payments and making a payment every two weeks you will in effect be making two extra payments each year. In order to do this you need to make the payments half of what you would have paid monthly. This means that your extra two payments go directly onto the principle lowering your total interest and speeding up your repayment process.

4. Increase the size of your payments

One of the most important ways of paying off your mortgage is by arranging to pay more than the minimum payment. Anything you pay extra will go instantly to the principle. For example, with the mortgage described above (a 25 year mortgage at 5% for a $200,000 home with 10% down) if you simply paid an extra $100 per month you would pay off your mortgage three and a half years early and save over $20,000 in interest. If you increased the extra payment to $250 per month you would pay off your mortgage more than seven years sooner and save nearly $50,000 in interest. If you went full out and paid an extra $500 per month you would pay off your mortgage eleven years sooner (in nearly half the original time), and save nearly $75,000 in interest.

5. Don’t refinance too often

The idea of refinancing for lower interest rates, or to free up some cash for other purposes, can be a serious temptation. Unfortunately, many people get in the trap of frequent refinances and end up getting stuck in a cycle of increasing mortgage debt. It is easy to think of using increased equity in your home to do renovations or repairs. In reality these sorts of things just add to your debt without creating any real personal wealth. Refinancing for lower interest rates may seem simple enough but there are often many fees involved. If interest rates have fallen significantly it might be worth refinancing once in a while, but don’t get in the habit. If you do refinance, make sure you understand all of the fees and make sure you are going to be living in the house long enough to truly take advantage of the lower interest rate.

6. Pay extra bulk payments

Extra bulk payments can be another powerful way of reducing the time remaining on your mortgage. In our example of a $200,000 home, an extra payment of $10,000 at the end of the first year shortens the length of the mortgage by about 2 ½ years and save you over $20,000 in interest.

7. Know your policy

The important thing to do when planning to pay off your mortgage quickly is to know your mortgage policy. Your policy may have certain provisions as to how you can pay off your mortgage and what sort of payments will have a penalty attached. In our case, our mortgage allows a maximum of 15% of the mortgage to be paid in a bulk amount each year. On top of that I can double any payment that I chose, and increase my payment amount by 10% once a year. These numbers serve as goals. By knowing that I can pay a maximum of 15% of the mortgage extra each year, I have a goal to pursue. I use their standards to drive me towards success and knowing the policy well protects me from paying any extra fees.

8. Set your debt free date

Like any goal, getting out of debt requires you to have a deadline. In paying off your mortgage your deadline is the date you set as your debt free date. This is the point in time when you plan on having your mortgage burning party and being able to say that you own your house outright. Do you have a debt free date? Take some time to set one and do what you need to do to make it happen.

Now don’t forget that you can combine all of these steps. Let’s look at one final example. We’ll stick to our $200,000 home and an interest rate of 5%. Remember that the original plan has you spending $135,000 in interest and paying off your home in 25 years. To start our plan you will make a bigger down payment. You’ll make a 25% down payment instead of 10%. You’ll take a 20 year amortization instead of 25 and you will increase the size of your payments by $200 a month. With this plan you will pay off our mortgage in 15 years and spend only $63,000 in interest; a savings of over $70,000. Do you think you might be able to put that $70,000 to good use? Of course you could. Not only that, but after 15 years you are done. You can take your monthly payments and redirect them to other things such as your retirement, travel etc. It is worth it. Make the small sacrifices now to live an unbelievable future.

Written by:
The Success Professor – Danny Gamache
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One of the accomplishments of 2008 that I’m most proud of is that my wife and I paid off and extra 15% of our TOTAL mortgage last year. One of our big goals is not to spend our life paying off debt.  For most people the debt they are left with for the longest is their mortgage.

Because of the size of a mortgage, early on in the life of your mortgage regular payments pay very little beyond the interest.  That, plus the fact that the average person moves to a new house (and usually a bigger mortgage) every seven years, means that most people have a mortgage for most of their lives.  As such mortgage fits the words origin: mortgage comes from the French word “mort” which means death, and “gage” which is pledge. As such a mortgage is debt until death.  Unfortunately for many people this rings true today.

Thankfully, it doesn’t have to be that way. The more you pay extra on your mortgage the quicker it will go away.  Extra payments can significantly accelerate your mortgage.  Putting extra on your mortgage early lowers your principle, meaning that you will always being paying less interest because of that extra payment.

Here are the six things we did in 2008 to pay an extra 15% of our mortgage:

1. Set a goal

The starting point for achievement is setting a worthwhile goal that you are truly motivated to accomplish. Our broad goal of paying off our mortgage quickly is a result of our desire to be debt free.  From our broader goal, it was important to set a goal for the year.  In our case the goal was set for us.  Part of our mortgage agreement allowed us to pay up to 15% of our mortgage extra each year as prepayment without penalty.  With 15% being the maximum allowed, it naturally pushed us towards reaching that limit.  Thankfully the 15% was both challenging and yet realistic.  We had to work hard to reach that as a goal, but we were able to do it.

2. Be Frugal

A second tip that helped us pay off our goal was to be frugal. While compared to some we never went to extremes in frugality (we still traveled significantly and enjoyed great vacations), we did make some important steps.  One example is that we did not eat out a lot.  In particular we took our own lunches to work, rather than having to purchase lunch.  We also made very few purchases of “extras” thus saving significant money on the little things.  Further, we never purchased wants impulsively; rather, we let some time go by to see if we still want the purchase.  We also saved a lot of money by buying things used.  We purchase things from garage sales, online classified ads and friends are all great sources for discount purchases.

3. Sell Things

A third thing we did is to sell things.  There are many ways to sell things.  You can clean out your garage or storage room and sell things you aren’t using. You can have a garage sale or sell through Ebay or Craig’s list.  You can also get rid of assets such as a second car that you don’t use very often.  This year, we paid off a mobile home that we had been renting out intermittently.  We were able to use some of the proceeds from that sale towards of our mortgage.

4. Pay off other debts

Another thing that helped us to pay off more on the mortgage was to pay off other debts. Over the past couple of years we have focused on paying off other debts as well as the mortgage.  In 2008 we also paid off my student loan, leaving us with only or mortgage remaining.  Each time we paid off a debt, we would add the previous payment to our extra mortgage payments, thus creating a debt snowball. Dave Ramsey, in his book “Total Money Makeover” (one of my top 10 books), recommends paying off your debts smallest to largest to create momentum for your debt snowball.

5. Find Secondary Sources of Income

A final big factor in paying 15% extra on our mortgage is the flexibility that comes from adding an extra source of income. Our home business affiliate program makes a significant difference.  We build our home business on a very part-time basis around our full-time work schedules.  That of course, means that the money we earn is extra, and is something we are able to use for achieving our goals such as paying off our mortgage!  There are many secondary sources of income that you can find, whether it is by taking an extra job, or starting a home business.

6. Have a Simple Budget

Finally, it is important that in order to achieve a financial goal such as paying off a debt, that you have a budget.  Unfortunately, most budgets don’t work, which is where my simple budget technique comes in.  By having a simple budget you are able to make wise decisions with your money because you always know where you stand.  You are able to make decisions based on what you have and the goals you want to achieve.
What are your goals?  Do you want to pay off extra on your mortgage, or pay off other debts?  What are you doing to make that happen? Share your goals and thoughts below to keep yourself accountable, and for the encouragement of all readers.

Written by:
The Success Professor – Danny Gamache
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