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As I stated before that the first step to renting out a room is having a goal in mind.   As you may or may not know, my goal when I first started this renting out rooms gig was to pay for graduate school.  But since I’ve graduated with my degree in 2009, I no longer have tuition to pay for.  Instead, my goal has focused on paying off my relatively high interest second mortgage.

How much is my second mortgage debt?

In May of 2009, the time when I graduate with my degree from graduate school, the balance of my second mortgage debt was around $35,500, amortized over 30 years bearing an interest rate of 8.75%.  Yeah, I know what you’re thinking.  That’s why I’m trying to pay this off as soon as possible.

Today, the balance stands at $16,180.   That’s nearly a 45% reduction in about 18 months.  I was able to accomplish this by being disciplined and paying back a fixed amount to the principle in addition to making the regular payments.  If you do the math, I was paying nearly an extra $1,000 month towards the principle balance.

It does take a bit of discipline to ensure that you stay on track.  At times, I’ve been tempted to buy a new flat screen TV to replace my large, heavy, and outdated traditional CRT aka tube type TV.  But, I’ve realized that buying a TV would prevent me from paying additional principle amounts to my mortgage, thus throwing off my time table to pay back this second mortgage.

To thwart temptations, here are some ideas I set forth so that I didn’t fall off track:

  • Don’t live off your rental income – I’ve been fortunate enough that my salary from my 9 to 5 job is enough to pay the mortgage payments.  From the time I started renting out my spare rooms, I’ve always allocated the rental income to paying for tuition first.  I’ve never used the rental income to buy fancy things or increase my standard of living.  Though, it would be nice to, but in reality, once you increase your standard, it’s hard to come back to a lower standard of living.
  • Automate – I’ve setup my roommates so that the rent check comes in the form of a direct deposit into my checking account.  I’ve also taken this step to setup an automated payment for the additional principle and regular payments to my mortgage company.  This ensures a framework that requires me to have money in my account before the withdrawal occurs, ultimately, this is what prevents me from spending excessively from my bank account.

At this rate, the balance of my second mortgage should definitely be paid off in full by February 2012.  If I make a few larger principle payments during the course of 2011, I can possibly pay the balance off by the end of 2011, which would put me ahead of schedule.  This would be stretching a bit, but it’s something I want to strive for.

What benefits does paying off the second mortgage bring me?

  • Sense of accomplishment – There’s an awesome feeling associated with achieving any goal in life and a personal finance such as paying back debt is no exception.  In fact, having any kind of loan paid of feels like a burden has been lifted from you.  I remember when I paid off my car loan in 2005 and I can’t wait to feel it again in 2012.
  • No More Payments – With a loan paid off, you no longer have to make payments for that loan.  In my case, I’ll free up close to $300 bucks with my second mortgage paid off.  I’m undecided on what I plan to do with the extra money in my budget, but I am strongly considering paying additional principle to my first mortgage.

This is my goal in a nut shell.  I’ll post some time in mid 2011 to see how I fair with paying back my second mortgage by the end of 2011.

What Goals do you have with renting out your spare room?


Sorry for the lack of constant posts, it’s been busy for the last several weeks.  I’m anticipating that I’ll be busy in a few weeks, but I’ll be better prepared.



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