Mortgage Hacking: Why I Paid My Mortgage Six Months in Advance

[Scott Benton]

At one point somehow I accidentally paid my mortgage on an investment property twice in the same month.

That was dumb, I thought, after realizing my mistake. However, instead of calling the bank and trying to get the money back, I figured I’d skip next month’s payment and get myself back in balance that way once again. No problem, I thought. This is an easy fix.

But then over a short period of time I realized that, no, actually it hadn’t been a dumb mistake at all. It was one of the best blunders I could have possibly made because over the next few weeks I realized how well I was sleeping at night.

At first I didn’t know why.

Eventually I was able to connect the dots and understand the secret to deep rejuvenating sleep was putting myself one month ahead on my mortgage payments. This, it turned out, would help avoid any possible underlying worries I had about paying late fees or penalties if I forgot to pay on time, had an inability to send it in for any reason, or simply wanted a month off in case a repair came along or a tenant left and I had to fix up the property for the next occupant and wanted extra cash to buffer reserves and cover expenses.

So I decided NOT to skip next month’s payment and continued making them as regularly scheduled. From that point forward I was always one month ahead on my payments.

Until later when I thought to myself it might be nice to stop paying the mortgage completely over a much longer period of time if I wanted to.

I began to notice many little hidden pain points involved when it came to mortgages on investment properties since in theory, and assuming you buy them correctly, they cover all the usual expenses and leave a surplus over to build up your reserves. Maybe it was the initial avalanche of terrifying documentation I faced to get the loan. Maybe it was the fact that those awkward legal-sized pages overflowed with official seals, government certifications, and a liberal amount of scary legal jargon that got me nervous and clearly meant if I ever got behind, I could almost certainly count on finding myself locked in some kind of mortgage prison they send real estate investors to who don’t make payments on time.

Finding myself one month ahead on my mortgage had become good mental headspace when it came to managing the anxieties of rentals and reliably took a considerable amount of solid fear off the table whether that fear was rational and justified or not. It’s one thing to talk yourself into something logically when it makes perfect sense on paper, but it’s quite another to convince yourself emotionally of the same thing. It’s almost like that part of your brain doesn’t work or much less consider the logic behind precision failsafe engineering. I definitely know from my own experience with anxiety that it never bothers looking at charts or tables to help reduce the feelings of exposure to potential risks. It’s like it has a mind of its own and decides what to do without consulting you first.

As research coming in from behavioral economists nowadays tells us we make purchasing decisions based almost entirely on our emotional temperament, looking into figuring out ways to set myself up through a more irrational lens of stress and fear instead of practical reasoned data started to make a little more sense. Since I never liked the idea of the automatic payment feature my bank offered, I thought pre-paying my mortgage might be the better solution and worth trying out if only to see what would happen. Besides, what if something went wrong with autopay and the bank ended up missing a payment? Computers and technology sometimes become wildly unpredictable, and if you’re smart you still make sure they do exactly what they were programmed for and never forget the importance of trust and verify.

I swore I would set up autopay once my reserves reached a comfortable level, but then I never turned it on. I suppose I liked hitting the “pay my loan” button on my banking app and the feeling of controlling the money flows in and out of the account. There was also something about making payments manually that kept me connected to the property as I watched the principal amount I paid every month increase slightly while the interest amount went down.

The more I thought about it, the more I reasoned that if putting myself one month ahead on my mortgage did as well for the quality of my sleep as it had, then surly putting myself TWO months ahead would be twice as good…or so I thought. It was a working theory, and one I also decided to try out since I had nothing to lose. Making extra payments became a simple and completely safe exercise because at any point I could bring myself back to even, so I made another extra payment without thinking about it too much, this time deliberately, and found myself two whole months ahead of schedule.

That’s when something else happened I wasn’t really expecting.

I completely forgot to worry about making a mortgage payment or cared whether a tenant moved out or not. Putting myself two months ahead more than covered any payment gaps long enough to fix the property and get it back on the market if rentals stopped coming in. Since my reserves were already at a comfortable level, I found making extra mortgage payments every few months didn’t affect the cash position, so I treated the whole process as if I had incurred a large repair bill that month which reduced the cash flow.

With rentals, every now and again a month would come along where I had to cover several repairs and it might take one or two months before I saw positive cash flow again. That always became difficult to watch as my bank account stagnated or even went down. In the case of making extra mortgage payments, I still knew I had the money benefiting me for any future problems that might come along and would provide a wider safety net if my property for some reason stopped producing income for a longer period of time. Since the money wasn’t visible in my account any longer, it was almost the same thing as having a “get out of jail free” card I could always play if I absolutely had to.

From there, making a third extra payment became extremely easy. In fact, the only problem I had was with the bank since this time they applied the entire amount towards the principal. Once I realized what had happened, I called the mortgage department and asked the rep to add it fully to an extra mortgage payment, something they were able to do by swapping out a code that told the computer to apply excess money to the principal, but not before asking why I wanted to make extra mortgage payments at all. The rep seemed confused by my request and wanted to double-check she understood my request correctly.

I explained I was trying something out as a kind of mortgage hack and wanted to build a backwards emergency fund. If at any point I needed cash or didn’t want to make a mortgage payment for the month, it would give me that flexibility, something I was curious to see whether I thought it would be a good idea or not. The mortgage rep listened, said it was an interesting plan she had not heard of before, and gladly initiated the code swap I needed into the computer.

Okay, great, so now I was three months ahead on my payments. It honestly felt incredibly comfortable, maybe a little overly comfortable, which I didn’t mind and didn’t care that the extra cash wasn’t sitting in my bank account.

But then after more time passed, I began to think about the three month position I was in and how it didn’t take much effort to get there. At the time of this experiment I was fortunate enough that I didn’t really need the monthly rentals for anything other than boosting my savings, so I thought I might as well get myself all the way to six months if only to see what other discoveries I could make along the way.

In the extreme case where I needed or wanted a whole six months of using the full rental amounts that came in, I would have given myself the ability to access that money without any repercussions. It’s true I didn’t have the cash stockpiled in a bank account somewhere, but I did have an option to stop paying the mortgage on top of utilizing my reserves, something I largely forgot about once the extra payments were in place. Since I had a few months of expenses saved for emergencies, I looked at the future mortgage payments as an emergency account to my already existing emergency account, or a kind of belts and suspenders preventative layer I could always employ if needed. Yes, I completely agree it’s overkill, I know, but I also can’t deny it felt good to have all those payments done—in fact, it made the whole pursuit worthwhile.

If I found myself without a job like a lot of people are suddenly finding themselves confronting today, and with no income to pay my way in the world, I knew I could always fall back on the emergency account I held in cash and wouldn’t have to worry about making mortgage payments for a long time if I needed to divert that money towards any number of unexpected expenses that popped up. It was a nice way to supercharge my monthly cash flow over a longer stretch of time which would give me an entire six months towards finding another solution for replacing my W-2 income and returning to regular stable employment.

It would also allow me to move easily from one city to another even if I was jobless. It would provide enough time to move my stuff and get settled into a new living situation, acclimate to the unfamiliar location, and begin looking for a job without fighting the inevitable panic of running out of money and being forced to spend a toxic wasteland of high-interest credit card debt.

It also padded the runway for me to check off any number of items on my dream list if I wanted to go after those, including traveling to Australia for a few months or maybe taking several side adventures such as exploring Belize, Mexico, Europe, or traveling around the US to visit friends. If I was feeling more ambitious, it allowed me to stop working and focus 100% of my time on writing a book, or maybe getting healthy if I became too burnt out from the usual non-stop adrenaline and cortisol-fueled American corporate work schedule. It gave me several options I didn’t have otherwise, but most of all my stress levels in owning investment property and what potentially could go wrong with them became almost completely non-existent.

Sure, just like a placebo, pre-paying my mortgage could end up as a pointless “financial sugar pill,” but at the end of the day I didn’t care. Even clinical trials of new drugs are always run against placebos because placebos seem to cure many illnesses by tapping into the body’s natural ability to believe it can heal itself, so why not pre-pay a mortgage? If it provides a benefit, placebo effect or not, why not use this advantage for all it’s worth? Like I said, I wasn’t interested in raw data or following traditional financial advice from Wall Street pundits about paying my mortgage only when it was due. By all accounts, pre-paying a mortgage should not have worked as well as it did, and yet it was one of the best things I managed to accomplish even though it began purely by accident. Arguably it was a bad idea, but I kept going to see how far I could take it and found there was a whole other side to this regardless of whether it was a good decision or bad decision or even made a whole lot of sense. I didn’t miss the money and could always reverse course if I felt it wasn’t worth it any longer. It gave me flexibility against corporate downsizing if I happened to get caught in a crossfire of layoffs, if I wanted to take some time off to go find another job, or if I wanted to move to another far off location. I knew I had a key ingredient in place with my pre-paid mortgage that I could tap into whenever I liked, but most of all the biggest benefit was the boost in good quality sleep I got. It made a big difference. Good sleep keeps you healthy, happy, and maintains your body’s natural weight set point, and for me there’s nothing worse than being unfit and tired all day long.

Besides, it always felt good to look at my bank account online and see my next mortgage payment wasn’t due until sometime well into the following year. I know arguably this is not a good idea, but once I was on the other side and no longer worried about whatever return that money could otherwise have generated in some random financial vehicle to measure it against, especially when I pretended the money didn’t exist in any tangible way, that extra emergency account is something I know I will repeat with all future longterm mortgages I happen to acquire.

I don’t know if I would necessarily crank it all the way up to six full months again unless over time I felt I had enough excess cash in my reserves that it wouldn’t matter if occasionally I bumped up my pre-payments by a month. Either way, I would still consider putting myself at least two or three months ahead on my payments in general. That seems to be the sweet spot and where stress dissolves completely to create a comfortable financial buffer. Mostly it’s all about maintaining a high level of good quality sleep every day and what I would measure my results against. As the economy shifts and my own personal finances and personal economics change over time, I know my priorities will adjust and I can see where a six month buffer might become warranted. If I start waking up at 3am on regular occasions, I might consider taking it up to that higher level, but as long as I keep the stress levels with mortgages within at a tolerable threshold, I don’t really care how many months I pre-pay.

When times are good, I’ve always found it was more than worthwhile to give myself a little space for a day when storm clouds started to gather far in the distance. Overall, I would say having enough in reserves, whatever that number is for you, probably is the most important priority, but I’ll also tell you it’s awfully nice to find yourself ahead of your payment schedule even if it’s just by one month.

And if you do end up playing around with the idea of making extra mortgage payments, I hope you get the best possible sleep you can and have the same experience with it as I did. From that one initial blunder of paying my mortgage twice, at the very least you now have one more tool you can use if you want to give yourself an additional layer of security in case something comes up you’d like to fortify against—or maybe just drop everything you’re doing and go live out a couple of those unrealized dreams spinning around inside your head.

I honestly can’t recommend making extra mortgage payments enough if only for the peace of mind it brings, and with little to no risk in trying this idea, if it doesn’t pan out and you’re still tossing and turning at night, at least you gave it a shot to find out what would happen.

But I think more than likely you’ll be very pleased with the results you get as I was. Maybe your peaceful dreams will reveal how to acquire more investment properties and grow your cash flow, or even how to orchestrate any number of future wealth building strategies you’ve been mulling over.

Still, if that doesn’t work and pre-paying your mortgage doesn’t improve the quality of your sleep, my suggestion is to drink one non-alcoholic beer sometime during the evening. Hops, it turns out, is an excellent natural sleep inducer, but alcohol often cancels out those benefits. With non-alcoholic beer you’ll get the powerful effects of the hops without the liability of the alcohol…and with that, come to think of it, I imagine pre-paying your mortgage AND drinking non-alcoholic beer might just possibly be the best combination for sleep you’ll ever find hands down. Next time I find myself ahead on mortgage payments, I know I’ll have to try out both just to see what happens.