In some ways I can’t quite believe it has been a year since I paid off the mortgage. Something that was the focus of so much of my attention, scheming, and calculating, is now just history.
On the other hand, the downstream consequences of paying off the mortgage kept showing up months after the actual event.
I thought it might be worthwhile to go over the past year without mortgage payments, and review the different ways my life has changed because of it. I break this down into three different categories: new bills from the loss of the escrow account, increased cash flow without the monthly mortgage payments, and changes in attitude.
In case anyone reading plans to pay off their mortgage soon, I have a few recommendations at the end.
No Escrow Account
My mortgage lender required me to have an escrow account when I bought my house. That escrow account was filled every month by about a 1/3rd of my required monthly payment, and with no effort on my part, that money was used to pay several different local taxes (due in different months) and the homeowner’s insurance.
I knew I would have to pay those bills myself once I no longer had to make a monthly mortgage payment. I had heard from my friend who had paid her mortgage off a few years ago that I would need to contact someone at city hall to get the tax bills reassigned. Otherwise I wouldn’t get them in time, and might have to pay a fine for missing the payment deadline.
Starting last fall, I put aside money each month to pay property taxes; and in the beginning of the year, I called the various municipal offices to have the tax bill sent to me. I paid some hefty taxes, and was sad to see the house fund drop precipitously. I need to keep working on filling it up again.
Despite the fact that I was dealing with city hall, transferring responsibility for my tax payments was much easier than for my homeowner’s insurance.
At the end of May, it was time to pay my home insurance for the first time. I received a statement, but saw that my insurance company still listed my (2-companies-ago) loan servicer as having a first lien. I had to call to get that straightened out.
In July I noticed that the first call did not fix the issue. They still had sent the bill to my old mortgage company, who certainly would not pay it since they no longer had my money in escrow. I called my insurer again, and the very nice person on the other end of the phone took care of it properly. He also offered me congratulations once he realized I had actually paid off my mortgage, which was still (even a year after the fact) exciting to hear.
I think I have everything set up as it should be, but I can’t be complacent. I will be setting my alarm to look for my tax bill in early 2021, and I will see if all the bills come to the right place.
Where Did the Extra Money Go?
Before I paid off the mortgage, I had so many plans for the extra money I would be saving (see Spending Money I Don’t Yet Have and Spending That Future Raise): traveling in style, buying clothes, getting a house cleaner, etc.
I thought it might be interesting to look back and see what I did end up doing with the “extra” money.
I had considered cutting my hours further. I am still thinking about it, but for now I am working the same as before: 0.9 FTE. At least, I am officially; COVID-19 has certainly done a number on how much I (and every other doctor) works these days.
I considered a number of one-time purchases. These included updating our personal electronics, fixing things around the house, traveling more.
I did buy Mr. PiN a new phone (replacing his unreliable 10-year old dinosaur), and myself an iPad, conveniently right before the Apple stores shut down. It was very helpful to have these electronic gadgets during the stay-at-home time for COVID. I was able to run telemedicine visits off the iPad, and thus could work from home several days a week, avoiding the potentially germy office.
We did buy another refrigerator, and stocked up our pantry. I was a little anxious about the extra costs, but we certainly had the cash flow to afford it.
Other projects, like redoing the carpeting, painting, and replacing the central AC have been postponed until later. This is only a little because of finances, but mostly because we aren’t sure it is a good idea to have strangers enter the house while a pandemic is going on.
As for spending money on travel: it’s 2020 and we have a pandemic. Need I say more?
Recurring costs. I had all sorts of ideas about how to spend more on recurring costs. Potential spending targets included: a regular cleaning service, giving more to college funds for my niece and nephews, giving more to charity, spending more on fitness with private lessons or massages, piano lessons.
Alas, we did not get someone to come in and clean the house for us. Now that the pandemic is an issue, we won’t be starting any time soon.
I did increase my contributions to the 529 plans for my niece and nephews, and also increased my monthly contributions (taken directly from my paycheck) to charity. I sent additional contributions to the local food bank this spring [this reminds me, I need to send another one soon].
With the gym closing, I have been paying for more exercise classes (yoga and weight training). It’s officially an added expense, although, since our gym stopped charging the monthly membership fee, overall the costs were a wash.
For a while, we paid to have groceries delivered, especially while I was home to take care of Mr. PiN. Obviously, we pay more with the delivery fee and tip, and I suspect we pay more because it’s harder to compare prices. On the other hand, we probably cut down on impulse buys. This is not a regular habit, but it was nice not to worry about price when I was too busy to go out to the store.
Increasing savings vs increasing investments.
Mostly, we have saved the money that had previously been going to the mortgage company.
Some of that money went to replenish “earmarked” savings funds, which were tapped to make the final payments on the mortgage. These are the accounts for paying for house stuff (taxes, big repairs) and vacations. I am still working on bringing them up to my preferred levels, but the accounts are increasing nicely.
Last year’s bonus beefed up our emergency fund, now that it wasn’t needed to pay down our mortgage. The emergency fund has gone from about 4.5 months of expenses (including mortgage payments) to a little over 10 months of expenses (no longer including the mortgage). I should probably plan to invest it in the stock market, but it has been nice having such a large amount of savings. Especially as the specter of pay cuts arose with the drop in office visits; or when I was considering whether I wanted to continue working in the hospital as COVID cases rose in the area.
Lastly, I increased my amount sent each month to my credit union, which is where I hide money from myself. For several months after paying off the mortgage, I noticed we were spending more and had little extra left over at the end of the month. After 3 months of this, I increased the amount by the equivalent of our old escrow account, and in January I increased it a bit more. The money in this account is earmarked for a replacement car, and in the future I may save up for a piano in this account as well.
Changes in Attitude
After 1-2 months, I got over the excitement of paying off the mortgage. My monthly bills still had to be paid, I just wrote one less check. My focus changed to using the extra money mindfully, rather than having it flow out of the house without a plan (see: extra savings, above).
By May, however, I really started to feel the consequences of a paid off house. With the pandemic and stay at home orders, volume was down at the office and hospital, and a pay cut was looking more likely. I felt very fortunate no longer to have mortgage payments. The old principal and interest was about 10% of my (gross) monthly check, so I knew we could handle a 10% cut without any worries. I suspect we could weather a bigger cut if needed.
In June, I was out of the office for several weeks because of my husband’s surgery. I wasn’t sure if I would get full pay for this month (it depended on FMLA approval and terms). With the mortgage paid off, I didn’t really care; I was able to focus on taking care of my husband instead of worrying about the bills.
Looking to the future, I am starting to feel more comfortable with cutting back my hours (and pay) even further. Something to think about once travel seems safer and more practical. For now, I continue on at 0.9 FTE, but content in the knowledge that the paycheck isn’t quite as essential as it was one year ago.
If You Still Have a Mortgage
Maybe you are a long way from paying off your mortgage, and can’t really imagine being done with it. If that is the case, take heart. It took me 5 years from the time I made paying off the mortgage a priority until I actually sent in the last check (well, wired it in; they won’t take a check for the final payment).
A funny thing happens when you pay off a large loan. As you make extra payments on the principal, the amount of your fixed payment that also goes towards the principal slowly increases. And then, one day, you pass a tipping point. For me, once the basic monthly payment reduced my principal by $1000, each and every month, I really felt I was getting somewhere. This made it easier to earmark gifts, tax refunds, and bonus payments towards paying down the debt.
If you are at the antsy end of your mortgage, with just a few months and maybe one extra payment to go, I have some more practical tips:
Review your escrow statements to see when your taxes and insurance payments are due. If they are due around the time you will pay off your mortgage, research who you need to talk to at the tax office or the insurance company. If they aren’t due for months, mark your calendar or set an alert to remind you to look for the bills early. You may need a few weeks and a few phone calls to resolve everything properly.
Make a plan (or start daydreaming) about what you will do with the extra cash flow. It is OK to have multiple options; you may find your needs or desires change once the extra money is available. If you are a big saver, it is OK to save most of it until you know what you want to do with your savings. I found without a plan, the money just evaporated, which was not what I had worked so hard for.
If you are at all introspective, the months after paying off your mortgage will offer some entertainment, as your attitudes about a number of financial issues change.
Enjoy being mortgage free! You have worked hard to get here, achieving something that not all homeowners manage.