A conventional mortgage today has a 25 year amortization, because the typical borrower wants, or needs, 25 years to pay off their mortgage. So is it possible to pay off your mortgage faster?
Sean Cooper became a media sensation after paying off his $255,000 mortgage in just three years. We talked with Sean about how he paid off his mortgage so quickly, what sacrifices he made, what he might have done differently in hindsight and what tips he has for anyone wanting to pay down their mortgage sooner.
First a few facts. As happens in the internet world quite of few myths and misconceptions built up around Sean's mortgage burning story.
- Sean paid for his own education through summer and part time jobs all through school.
- He graduated with no student debt and was able to save while in school.
- He did live at home but paid rent. Beyond that his parents didn't help him out with his down payment or pay for his school tuition.
- He had trouble finding a full time job in his occupation right away so worked in a supermarket while continuing to save for a down payment.
- Three years after graduation, now working full time in his current job, he bought a home for $425,000 with a down payment of $170,000.
- Sean paid off his mortgage in just three years and 2 months.
Tips To Pay Off A Mortgage Faster
Sean's original mortgage amortization period was 30 years so to pay it off faster he maximized all possible prepayment privileges contained in his mortgage agreement. That means:
- doubling up on mortgage payments;
- increasing the amount of monthly payments by the allowed percentage;
- taking advantage of lump sum payment options.
Most mortgages allow the borrower to make a lump sum extra payment once a year, often for 10% or more of the mortgage, without penalty. Sean saved his money and made a prepayment whenever he could, and that saved a lot of interest and shaved years off the length of his mortgage.
While Sean did work three jobs and rent out the upstairs of his home, Sean explains that paying off your mortgage sooner involves two basic principles:
- boost your income
- cut back on expenses
For Sean is was a matter of priorities and cash flow. Living in the basement and renting his upstairs was what he chose to do because it made financial sense. He earned double what he would have earned renting out the basement and living in the basement wasn't a hardship for him. As Sean explained it he looked at his choices as:
short term pain for long term gain... [I could] work hard for three years to get a lifetime of debt freedom
Sean no longer has to live with the fear of losing his job or facing a global recession. He has financial security.
We did ask Sean if he would do anything different. You'll have to listen to the podcast for his answer.
Debt Management Tips
Sean provided some tips for anyone considering taking on a mortgage however his advice applies to any type of debt you are taking on or trying to pay off.
- Make a list of needs versus wants
- Be willing to make compromises
- Set SMART goals
- Have a budget
- Make a game plan which may include talking to a professional.
We specifically asked Sean if he thought a mortgage was good debt or bad debt. His take was that it's neither or both, depending on your circumstances. Rather it's the amount that you borrow and how long it will take to pay it off that matters.
when you take on a mortgage you shouldn't become a slave to your house
Listen to the full podcast, or read the show notes below. Sean speaks about any regrets he might have and his plans for writing a book about his experiences and lessons learned.
Resources mentioned in the show:
FULL TRANSCRIPT show #81 with Sean Cooper
My guest today has a very interesting story. He created quite a media sensation because he bought a house in Toronto, worked hard, kept his expenses low and paid off his mortgage off in just three years and two months at the age of 30.
Some people heard his story and thought that's great, he worked hard, lived frugally and paid off his mortgage. He's an inspiration, if he can do it, anyone can. But other people had the opposite reaction. They said he was crazy 'cause the way he did it was by working three jobs and living very frugally and that's not very realistic for many people. He's single so he didn’t have to worry about spending time with his family so he could work 100 hours a week. He biked to work, brown bagged it for lunch and didn’t splurge on nights out or vacations.
So, what's the real story? Is it a worthy goal to work 100 hours a week to get out of debt fast or is that not realistic for most people? Also, how did he do it? So, let's get to the story with my guest. Who are you and what do you do?
Sean Cooper: My name's Sean Cooper. I work as a senior pension analyst and a pension consulting firm as my full-time job. On top of that I also work as a personal finance writer and I'm a personal finance expert.
Doug Hoyes: Excellent. So, let's get into the story of your house then. So, you bought a house I believe in Toronto. When did you buy the house?
Sean Cooper: I purchased my house in August 2012.
Doug Hoyes: And I believe this has already been reported in the media so I don’t think I'm asking you questions that haven’t already been out there. But how much did you pay for the house?
Sean Cooper: I purchased my house for $425,000, which is definitely a reasonable price for Toronto.
Doug Hoyes: Yeah, 'cause every house is a million bucks or something in most cases. And so, that was in 2012 you said and how much of a down payment did you have when you bought the house?
Sean Cooper: I had a down payment of $170,000.
Doug Hoyes: So, the mortgage was -
Sean Cooper: 255.
Doug Hoyes: $255,000. You're much better at quick math than I am then. So, how did you manage to save up for the down payment?
Sean Cooper: Well, I pretty much started saving my down payment when I was still in university. I didn’t actually have any student debt. I know a lot of students are graduating with thousands of dollars of debt. But I worked three jobs while I was in university and I also worked during the summertime. I did a couple of internships where they were paid so, I was pretty much able to pay for my whole year's worth of tuition just from working during the summertime. And any extra money that I earned I pretty much started saving towards the down payment of my house. So, when I graduated not only was I debt free but I actually had a decent amount of money saved towards a down payment of a house.
Doug Hoyes: And how long was it after you graduated that you bought the house? We're talking two, three years kind of thing?
Sean Cooper: Yes, I graduated in April 2009 so I bought my house in August 2012, so it was over three years. 'Cause when I graduated of course it was during the financial crisis so I actually wasn’t able to get a decent job right away. I ended up working full-time at a supermarket for almost a year. And then I finally landed a decent job at the pension consulting firm. So, it definitely wasn’t easy right off the bat but I pretty much stuck with that job for over five years now.
Doug Hoyes: And so you didn’t get the down payment because your parents are rich and they gave you $200,000 then.
Sean Cooper: No, it's funny. In some of the stories there's been some misinformation reported like it said that I earn $75,000 a year for my full-time job, which isn’t correct. As well it said that my parents gifted me the down payment and that's totally incorrect as well. While my parents did help me by allowing me to live at home, I did pay them rent, so it wasn’t a free ride by any means. I came up with the down payment myself.
Doug Hoyes: So, how long then did it take you to pay off the mortgage?
Sean Cooper: It took me a little over three years to pay off the mortgage, so about three years and two months to be exact. So, I managed to pay off the mortgage at the end of September 2016, sorry, I ended up paying off the mortgage at the end of September 2015.
Doug Hoyes: 2015 and that's when you had the big mortgage burning party and that was certainly something that was covered in the media. And I'll put links in the show notes to some of the stories that have appeared. Of course I'll also put links to your blog and everything so people can track you down.
So, I guess the real question then is how did you do it? You're talking $255,000 in a mortgage that you paid off in just over three years. That sounds unbelievable to most people 'cause you're looking at 50, 60, 70 thousand dollars a year that you're throwing on a mortgage. That's more than a lot of people make. And you just said that you're not working at a job where you're even making $75,000, which has been reported in the media. So, how did you do it? How did you manage to generate that kind of income to pay off the mortgage that quickly?
Sean Cooper: Well, it's not rocket science or anything. I'm not related to Donald Trump and, you know, I don’t have a trust account the size of Paris Hilton. But definitely it was two main ways, it was boosting my income as well as cutting my expenses. So, on the boosting the income side, I worked my full-time job at a pension consulting firm so I earned a decent amount from that, not $75,000 but I earned like $55,000 around that. And then I worked on top of that as a personal finance writer and I also worked, until a year ago, I kept my first job at a supermarket so I earned extra money from that.
So, the combination of the three and also was a landlord on top of that. So, I was earning like over $100,000 a year from all of those income sources. So, with all that money I was able to make lump sum payments on my mortgage and I actually maximized the pre-payment privileges. My mortgage was with a secondary lender First National so I was able, they had generous pre-payment privileges so I was able to max them out every single year. I'd double up my payment, I increased my payment by 15% I believe and I also made lump sum payments totaling 15% a year. So, I took advantage of all of those and on the expenses side I lived as frugally as possible.
So, people, besides their mortgage and rent, their two most costly expenses are transportation as well as groceries or food. So, I was able to cut down those expenses drastically. First of all I don’t own a car because I live near the subway station. And when the weather's not so nice I'll take the subway but during the summertime and nicer weather I'll cycle into work. So, I was able to cut my transportation costs a lot by doing that.
Also in terms of groceries I'm a vegetarian so I save a lot of money from doing that and I also shop at discount grocery stores like No Frills and Fresh Co and price match and basically I try to only buy stuff on sale. So, I saved a boat load of money doing that.
Doug Hoyes: So, I want to come back to the expenses but let's just touch on the whole pre-payment thing that you said. So, in a standard mortgage I'm making a payment every month or every two weeks, however I've got it setup. Most mortgages have some kind of pre-payment terms in it. The mortgage that you had, the way you're describing it allowed you to make extra payments up to a certain amount per year, is that how it worked?
Sean Cooper: Yes, I was able to make lump sum payments like totaling 15% I believe. So, whenever I had freelance income come in like from my writing work like when I would get a cheque in the mail I would basically make a lump sum payment then and there against my mortgage. So, I was able to - 'cause that money went directly toward principle so I was able to, you know, shave years off my amortization. I believe my amortization originally was 30 years so I managed to get that down to three years and two months.
Doug Hoyes: Wow. So, I guess as a planning point for people make sure you understand what pre-payment privileges you have in your mortgage and if you've got the extra cash that's something good to do.
So, back to the expenses then, 'cause as you said there are two ways to generate extra cash, increase your income or reduce your expenses. So, increasing your income you said you worked three jobs. You said you had your main job; you had your job on the side, a side hustle I guess you could call it as a personal finance writer. And then up until a year ago you were also working at a supermarket, which I assume was a relatively lowly paid job. You weren’t the president of the supermarket I'm guessing. So, you were working - like how many hours a week were you putting in at your peak?
Sean Cooper: I was putting in on average I'd say 80 hours a week. But I did put in like 100 hours a week the odd time. That seems like a lot of hours to people but like I was working on some tax writing projects and I was able to make something like $13,000 in freelance income one month. So, I put in the extra hours because I was able to make a lot of money but I didn’t work 100 hours a week every week. I don’t think I'd be living if I did that.
Doug Hoyes: Yeah, that would probably kill you. But 80 hours a week, I mean that's two full-time jobs. So, then on the expenses side, you kind of sketched out how you did it. You don’t own a car so you're able to either walk, take your bike, take public transit and then keeping your food costs as low as possible. So, the house that you live in, which you own your living in the basement and renting out the top, is that what you're doing?
Sean Cooper: Correct. I actually got that idea from Scott McGillivray's HGTV's Income Property. My father was a big fan of his show. And like a few years ago, maybe five years ago, I had never watched it before so I figured I'd just tune in 'cause he said it was a good show. So, I watched it and I heard Scott McGillivray tell a story about how on his first income property he lived in the basement I believe it was for nine years. And to basically help with his cash flow. His friends were asking him why are you living in the basement, you can be living in such a nicer place. And he was like it's all about cash flow so that was my idea as well. So, he's definitely my inspiration for doing this.
Doug Hoyes: And the reason being you can rent out the top floor for more than you can rent out the basement.
Sean Cooper: Exactly. When I looked out it from a logical standpoint I could rent out the basement for about $800 a month and live upstairs. Or I could live in the basement and rent out the upstairs for double that amount, $1,600. And being one person and also not being home very often it didn’t make sense to have a whole, like three bedroom house to myself. I just wouldn’t have the furnishing to fill it with and like it just didn’t make sense. So, the choice seemed obvious to me. Especially with the sky high housing prices in Toronto, to live in the basement and rent out the upstairs I had been living in the basement pretty much all my life so it wasn’t really much of an adjustment for me.
Doug Hoyes: So, now let's get to the key question and this is kind of what's been in the media. So, you've got some people that say this is fantastic. You've got a guy who's living really frugally, worked really hard, he deserves all the rewards he gets. But then you've got the alternate viewpoint that is this guy is nuts. He was working 80 to 100 hours a week. All through university, all through working, he just kept working, working, working. He doesn’t own a car, he's living in the basement, hasn’t gone on a fancy vacation. You know, you got to enjoy life sometimes. So, what's your response to that? ‘Are you crazy’ I guess is my question?
Sean Cooper: I guess it's how you define crazy. In all seriousness, I saw it as short-term pain. I basically saw it as short-term pain for long-term gain. A quote that I find very inspirational is from Mark Cuban, the owner of the Dallas Mavericks and he's also on Shark Tank. He says that you should, I'll just paraphrase it, he says you should work like there's somebody working 24 hours a day to take it all away from you. So, that quote really resonated with me.
So, for me I saw it as - like how high housing prices are today I didn’t mind working hard for three years to get a lifetime of debt freedom. It definitely made sense for me to do that. I mean now I don’t have to - a lot of people, their biggest fear is losing their job and how will they pay the mortgage. But now I don’t have that fear. I mean with globalization you don’t know if you're going to show up for your job next week and then find out that the work is being outsourced to another country with lower wages and you're out a job. So, I didn’t really want to have that fear hanging over my head for the next 25 years like a lot of people with their mortgages so that's why I vowed to pay it down as soon as possible.
And something that was an inspiration for me was my mother because when the dotcom bubble happened and she almost lost the family house, that kind of always was at the back of my mind. So, I didn’t want to be in the same situation so that's why I wanted to burn the mortgage as soon as possible.
Doug Hoyes: And so, now that the mortgage is paid off what is different in your life? You're still living in the basement. Are you - you're not working three jobs anymore, or you're only working two, is that the big change?
Sean Cooper: Yes, no more supermarket job.
Doug Hoyes: And so, looking back on it, back to my question about whether you're crazy or not, would you do anything differently then? Because if you're working 100 hours a week that's pretty much all you have time to do, right? It's kind of hard to go out for a drink with the boys or have any kind of life. Would you do it differently if you were to do it again?
Sean Cooper: That's an excellent question. I would say perhaps I would have paid it off in five to six years rather than three years because I would have been able to have a better work life balance and not worked all those crazy hours. Then again I'm able to pretty much enjoy myself now and enjoy mortgage freedom for the rest of my life.
So, as they say hindsight's 20/20 so perhaps if I had taken an extra two to three years to pay it off, if I could have enjoyed some of the things that you mentioned like drinks with the boys or going on a vacation or two. So, looking back I guess I have a few regrets but I mean I'm not really sad about having my mortgage paid off, it's nice not having those mortgage payments coming out of my bank account anymore.
Doug Hoyes: So, if someone's listening to us today and they're thinking about buying a house. What advice would you give them?
Sean Cooper: Well, I would say definitely make a list of needs and wants of what you're looking for in a house. It's probably not realistic that you'll be able to find everything that you're looking for in a house. So, definitely be willing to make compromises 'cause if you're buying in an expensive housing market like Toronto where the bidding wars are the norm, then you're definitely going to have to be willing to make compromises otherwise you're going to be looking for the next decade for a house and you might be priced out of the market.
I would also say when it comes to getting a mortgage just because the bank says you can get X amount of dollars for example $800,000 doesn’t mean that you should. The bank is in the business of loaning people money. So, you don’t want to be stuck with some massive mortgage for the next 20 years hanging over your head and you don’t want to be a slave to your house as well. So, definitely take a look at what your monthly mortgage payment, or if you're going to pay it weekly, just take a look at how much money will go out a month and see if that's really affordable for you because if it means giving up all the things that you love, then it might not be worth the sacrifice.
Doug Hoyes: And so, what advice would you give someone then who already has a house, already has a mortgage and wants to pay it off faster? It doesn’t sound like you're advocating doing what you did and working 100 hours a week, what's the middle ground then? What are the things people should think about who already have a mortgage but they'd like to get it paid off quicker?
Sean Cooper: Well, I think goal setting is definitely the key. If you don’t set yourself a goal then you're not likely to achieve anything, whether it's paying off your mortgage early or retiring early. So, I definitely think that goal setting is the beginning. So, I'm a big fan of setting smart goals, which is a specific, measurable, achievable, realistic and time bound. So, basically take a look at how soon you'd like to pay off your mortgage and then do the math and see if you're able to do that. So, break it down and see how much money a month you'd have to go towards your mortgage.
And definitely have a budget because if you don’t have a budget then it's hard to take a look at where your money's going each month. So, basically make yourself a game plan and perhaps sit down with a financial planner and see, you know, see if you can actually achieve a more aggressive goal. I mean just because your mortgage amortization is 25 years, it doesn’t mean that you have to pay it off in 25 years. You can perhaps set a goal of paying it off in 15 or 20 years and enjoy mortgage freedom that much sooner.
Doug Hoyes: So, you've given us a whole bunch of practical advice but obviously this is a 30 minute show. We can't go into massive amounts of detail on this. Have you ever given any thought to taking all of your experiences over the last few years and putting them into a book or something that goes into more detail?
Sean Cooper: Yes that might have crossed my mind once or twice.
Doug Hoyes: Well, so tell us the scoop then. When's this book coming out, what's happening? Give us the inside story here.
Sean Cooper: Well, I'm just finishing up the manuscript right now. The working title is Burn Your Mortgage. And rather than having it written like a book like The Four Hour Work Week, which was a New York Times bestseller, I'm kind of going with the middle ground. 'Cause my story, some people didn’t like the fact that I paid off my mortgage in three years so I'm kind of going with the middle ground for my story.
So, it's basically telling my story of paying off my mortgage to help inspire people. But it's also offering practical advice for people in different financial situations. I mean if you have a family or somebody is disabled in your household or somebody is sick, it's probably not realistic to pay off your mortgage in five years or three years or whatnot. So, it's basically to offer people practical financial advice no matter what situation they're in. And then they can basically take what information that they like and apply it to their own life and pay off their mortgage sooner at their own pace.
Doug Hoyes: So, this is a book that we'll perhaps be able to see sometime later in 2016, early 2017, some kind of timeframe like that?
Sean Cooper: Yes, I am aiming to get it published at the end of 2016 in time for the holidays. 'Cause I figure with New Year's resolutions coming up this would definitely be a good book to get people motivated because a lot of people set financial New Year's resolutions to pay off debt. So, mortgages is the biggest debt for most people so I figure that's perfect timing to get people pumped for the new year.
Doug Hoyes: That's great. I'll put a link in the show notes over at hoyes.com to your blog and to your twitter account which is @seancooperwrite as well as to some of the media articles about you and some links to some of your writing so people can follow you and find out when the books is ready. Sean, thank you for joining me today.
Sean Cooper: Thank you, my pleasure.
Doug Hoyes: Thanks Sean. We'll take a quick break and then be back with more right here on Debt Free in 30.
It's time for the Let's Get Started here in Debt Free in 30. My guest today is Sean Cooper, who is the guy who paid off his mortgage really, really quickly, just over three years. And in the first segment we talked about how he did that.
So, Sean I've got a question for you and this is more of a philosophical question. Is a mortgage good debt? Because we've talked about it before on this show and they are varying opinions. Some people will say well, yes anything you borrow to create an asset, like a house, to buy a house, the house will go up in value therefore borrowing to buy a house is a good thing, mortgage debt is good. The flip side of the argument is no, in general debt is bad. You don’t want to have any more debt than you need to have. And obviously you paid your debt off as quickly as you could. So, you perhaps fall into that camp.
What do you think of that? Is mortgage debt always good debt, sometimes good debt, never good debt? Where do you fall in that argument?
Sean Cooper: That's an excellent question Doug. I would say that there's no real black and white answer. With mortgage debt - mortgage debt by definition is good debt. You're borrowing money for an asset that you hope, that hopefully appreciates in value. So, by definition mortgage debt is good debt.
The problem is people are taking on records amount of debt. Like if you look at the household debt to income ratio, it's at 164% and then main reason for that is because of mortgage debt. People are taking on these massive mortgages where it's going to take them 25 years to pay off. Some people are even taking on massive mortgages in their 50s or 60s, which is quite alarming. It used to be considered taboo to carry mortgages into retirement but now it's become a lot more acceptable.
So, I would say mortgage debt is good debt to a certain degree. So, in my opinion when you take on a mortgage you shouldn’t become a slave to your house. So, if you're spending 50% of your income towards mortgage expenses then I definitely think that's way too much money.
So, you have to remember that the bank is in the business of loaning you money and they're basically trying to have you borrow as much money as you can financially handle. So, the bank is aware of the fact that you'll put mortgage debt ahead of everything else in order to pay it. I mean you're not going to stop paying your mortgage because it means that you're going to be kicked out of your house and living on the street. So, people tend to mortgage debt at the top of their list.
So, I would say the best advice would be to take on a mortgage that you can handle and pay off in a reasonable amount of time. So, take a look at what your mortgage payments would be and put it in your budget and see if it would be affordable and if you can still enjoy some of the things that you like in life whether it's taking a vacation once a year or going out to a restaurant or two during the month but definitely don’t be a slave to your mortgage.
And a bigger mortgage, even though your principle residence is tax sheltered, it means that you've have other higher expenses such as utility costs, property taxes as well as you'll have to buy furnishings for all of those rooms. So, I would say take on a mortgage that you can afford. But just because the bank says you can borrow $800,000 for example doesn’t mean that you should. Take a look at what you're looking for in a house and if it falls below the amount the bank says that you can loan, then great because then you have extra money to put towards other things, whether it's your retirement with your RSP or RESP if you have children.
Doug Hoyes: So, the bank isn’t your friend. They're loaning you money because that's how they make money. So, just because a bank says you qualify for a three or four hundred thousand dollar mortgage, you should not borrow to the limit is what you're saying.
Sean Cooper: Yes, you should definitely leave yourself some buffer because if and when interest rates go up your mortgage payment could go even higher. So, if you're already borrowing at your limit you're going to definitely run into some financial difficulties. So, I would say take on a mortgage that you can afford and make a plan to pay it down sooner if you can afford to do that.
Doug Hoyes: And you also talked about the other expenses that we kind of forget about. So, we go to the bank and we figure okay my mortgage payment's going to be $1,500 a month. Yes, I can afford that, that's great. But the mortgage payment is the biggest payment perhaps but there's lots of other payments that there are. You kind of listed them off, things like property taxes, utilities and so on. What kind of numbers is a new homeowner looking at with respect to that?
So, I mean in your case you bought a house for $420,000, if my mortgage was $1 a month, how much would I be paying in all those other costs, property taxes, utilities, the other things perhaps I forget about. Is it another 20, 30, 40 cents on top of that? Another 50 cents, what should I be building into my budget for something like that?
Sean Cooper: Well it depends on a number of factors but I would say in the range that you mentioned is accurate, like property taxes depends on where you live as well as the value of your house. And it's hard to say but I would definitely say a good idea would be to ask the current, if you're looking to buy a house, ask the current homeowner for perhaps a breakdown of their utility costs. And definitely ask about the property taxes 'cause you can kind of make yourself a budget ahead of time and see if you can handle it.
Doug Hoyes: Excellent. So, factor in all the expenses and then you'll know whether it's affordable or not. Great, thanks very much for joining me Sean, I appreciate it.
Sean Cooper: My pleasure, thank you Doug.
Doug Hoyes: Thank you. That was the Let's Get Started segment. We'll be right back to wrap it up right here on Debt Free in 30.
Doug Hoyes: Welcome back. It's time for the 30 second recap of what we discussed today. My guest was Sean Cooper, who paid off a $255,000 mortgage in just over three years by working up to 100 hours a week and drastically reducing his living expenses. That's the 30 second recap of what we discussed today.
So, what's my take on Sean's drastic approach to debt elimination? Well, I think we each have to decide for ourselves what we want. Sean wanted to be mortgage free as fast as possible to eliminate risk in his life. With no mortgage he doesn’t have to worry about losing his job and not be able to pay the mortgage so for him the sacrifice was worth it. But as Sean said, if he had to do it all over again he'd probably take a less drastic approach to free up some time for a social life. It's a question of balance and that's a decision we all have to make for ourselves.