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Mortgage-Free for Financial Independence

August 17, 2020

When considering the many perks and benefits of living life without a mortgage, we really need to take a moment to clarify the difference between two prominent movements that have swept through popular culture in recent decades: the FIRE Movement and the Mortgage-Free Movement.

FIRE is an acronym that stands for Financial Independence/Retire Early, and it was first introduced by Vicki Robin and Joe Dominguez who authored the bestselling book in 1992, Your Money or Your Life. A must-read in our opinion. Since that time it has been popularized by the likes of Dave Ramsey, Pete Adeney, and many others. The basic premise is to save aggressively, reduce your expenses, and then be able to retire within 10-years. There are a ton of other blogs that cover this topic exclusively and a quick Google search will provide you with plenty of options for learning more or getting started.

The Mortgage-Free Movement, on the other hand, doesn’t have a singular author to credit or a definitive advocate championing the cause. While early retirement could be one potential benefit from not having a mortgage, the central concept is to gain financial independence so you can have greater freedom to chose whichever lifestyle you want. For us, that would obviously mean more travel. For others, it could mean greater security or the ability to take more risks like starting their own business. No matter what country, culture, or demographic you belong to, housing costs are consistently most people’s largest expense. By taking that out of the equation, we can begin to reimagine what else might be possible.

A Brief History of Mortgages

The word “mortgage” is derived from the French word “mort” which means death and the Middle English word “gage” meaning pledge. Put them together and mortgage literally translates into “death pledge.” The idea of homeownership is ingrained into the very concept of the American Dream, but instead has caused many of us to feel trapped and shackled to our homes.

October 29th, 1929, also known as “Black Tuesday,” saw the worst stock market crash in US history and spurred the beginning of the Great Depression. In the years leading up to the Great Depression, mortgages in America were much shorter at either 5 or 10-year loans that had the remaining unpaid balance due at the end of the term. By the time 1933 rolled around, thousands of homes were being foreclosed upon every day because homeowners could not keep up with their payments or could not afford the final balloon payment at the end of the term.

In more recent times, the entire world economy suffered from the financial and housing crisis in 2008 primarily due to predatory lending practices. In early 2006, mortgage lenders were providing home loans to people who really couldn’t afford them. The increased popularity of these sub-prime mortgages inflated home values creating what we refer to as a “housing bubble”. In conjunction with the housing bubble, the stock market crash of 2008 caused many people to lose their jobs, homes, and even retirement savings.

The lessons learned during both time periods are the same. Carrying a costly mortgage can be disastrous when the rest of the economy is down. But even when times are good and the overall economy is doing well, a mortgage can still come with plenty of problems and unintended consequences. The simple fact is, committing to a traditional 30-year mortgage doesn’t have to be the de facto path that we all choose. 

Sustainable Living

So how can we still achieve homeownership without going into debt for the majority of our adult lives? It starts by embracing the concept of sustainable living where we learn to reduce our impact by using less and making smarter more efficient choices. That could be something as simple as not buying as much stuff (material things) to fill our homes, but it can also mean looking at alternative options when it comes to building and construction. Since building our own home without a mortgage is one of our primary goals, we’ve done a lot of research on sustainable building methods and have stayed in several homes that are both cost-efficient and environmentally-conscious.

Earthships

An Earthship is a type of house built with natural and recycled materials with energy conservation in mind. It is designed to produce water, electricity, and food for its own use. We stayed in our first Earthship back in 2019 located in The Greater World Earthship Community in Taos, New Mexico. Earthship leader, Michael Reynolds, has lectured and taught his building techniques all across the globe.

Cordwood Homes

Cordwood construction is an inexpensive and environmentally sound method of building both exterior and interior walls for houses and outbuildings. Also referred to as cordwood masonry or cordwood building, the process involves the use of short log ends and a simple mortar mix of sand, lime, Portland cement, and sawdust. We recently attended a workshop at Earthwood Building School in West Chazy, New York, taught by founders and longtime cordwood masons, Rob and Jaki Roy.  

Straw-Bale Homes

Straw-bale construction is a building method that uses bales of straw (commonly wheat, rice, rye, and oats straw) as structural elements, building insulation, or both. This construction method is commonly used in natural building or "brown" construction projects. Evidence of straw houses goes back as far as the Paleolithic Era, but modern straw bale homes can be an affordable and eco-friendly option.

Pallet Homes

The Palette House is an inexpensive, efficient, and easily constructed temporary housing option. Pallet Houses were first introduced as a solution to the problem of people displaced by natural disasters, plagues, famine, political and economic strife of war. These can be great options if you plan to build a home like any of the options listed here, but you need a temporary structure to live in onsite during construction. While not a permanent housing solution, they’re still an interesting and fun temporary building solution.

Shipping Container Homes

The first shipping container home was designed in 2006 by architect Peter DeMaria and construction was completed in 2007. Since that time, shipping container homes have popped up all over the world from single container dwellings to complex multi-container structures. Used shipping containers are more eco-friendly and can be purchased and delivered to almost any location.

Yurts

A traditional yurt is a circular tent that is reinforced with a wooden frame. Typically associated with nomads in parts Eurasia and lodging options while on safari, yurts have also been gaining popularity as a mortgage-free housing alternative. To see just how much modern yurts have evolved, check out Smiling Wood Yurts, a Washington-based company that builds prefab designs that are custom-engineered to your build site specifications.

Modern Prefabs

The term prefab simply refers to buildings that are built into components and transported in sections. While many people think of mobile homes when they think of prefab structures, modern prefab homes actually include an astonishing amount of variety and options. Thanks to advances in construction and engineering, there is an almost endless amount of choices that cost under $100K, and many you can even order directly from retailers like Amazon.

Fixer Uppers

What if you prefer a more traditional home, but still want to avoid a mortgage? A fixer-upper can be the perfect solution as long as you’re willing to put in some of the work yourself. As repeatedly shared in many HGTV shows, “sweat equity” can help you save thousands of dollars when restoring a property. Want to explore some beautiful old homes you can buy for next to nothing? Be sure to check out Cheap Old Houses where you can browse historic homes that can also be a great investment or a mortgage-free solution that’s right for you.

Strategies for Paying Off an Existing Mortgage

What if you already have a home and you’re stuck paying on an existing mortgage? If you love your home and have no interest in moving, there are still plenty of strategies to help you pay off your mortgage as quickly as possible.

·       Switch to Bi-Monthly Payments. By making this one simple change, you can shave off as much as 5 years from a traditional 30-year mortgage. Paying bi-monthly has two key advantages: (1) You have more going to principal sooner which means less time for interest to accumulate, and (2) you will end up making an extra payment every year which will also help you save on interest and pay your loan off even faster. It’s worth noting that not all mortgage servicers allow for bi-monthly payments. This may be another reason to look into our next option…

·       Mortgage Refinance. In many cases, refinancing will add more time to your mortgage by lowering your monthly payment and extending your term, but it doesn’t have to work that way. When you refinance, you also have the option of switching from a traditional 30-year mortgage down to a 15 or even a 10-year mortgage. Your monthly payment will be a little higher, but not proportionally to the number of years you’ll be removing from your term. Before you commit, remember to ask if your new mortgage servicer allows for bi-monthly payments.

·       Mortgage Recast. Many people are familiar with refinancing, but not as many people know about recasting. This is when a borrower pays a large sum of money towards their principal and a new mortgage is then recalculated based on the remaining balance. This is most likely to happen whenever someone receives an inheritance or some other influx of cash. Not all mortgages allow for a recast, but if you have a relatively large amount of money set aside then it may be worthwhile to see if you qualify.

·       HELOC. A home equity line of credit (HELOC) is another option for paying off your first mortgage. Think of it like a credit card with a much lower interest rate because it’s secured by the value of your home. A HELOC is typically open for a 10-year period in which you can borrow from and repay it as often as you like. The most common reasons people open a HELOC are to help pay for home improvements, pay off higher interest debt, or help pay for a child’s college education. However, it is possible to use the available funds from a HELOC to pay off the first mortgage entirely. You could end up saving thousands of dollars because of the amount of accumulated interest you could avoid. There are even potential tax benefits if you use funds from a HELOC to help with any home improvements.

·       Rent It Out. Your home is an asset, so put it to work! There are a couple of different directions you could go. If you have a spare room, a mother-in-law suite, or even a nicely finished basement then you can quickly start renting it out on sites like Airbnb, HomeAway, or VRBO. Some homeowners may rent out their extra space on a regular basis while others may decide to rent out their entire home whenever they’re away. The other option is to simply find a long-term tenant to lease your home to and find another more affordable housing option for yourself. Becoming a landlord isn’t for everyone, but many people have discovered that turning their former home into an investment property provided them with the financial freedom they were looking for.

written by vincent Neal / Travels and Curiosities

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