Paying off the mortgage, one brick at a time

[vand]

We're not there just yet, but my long term strategy which I insisted on when we bought our flat 5 years ago is now closer to the end that it is to the beginning.

When we bought our flat in 2011 we paid exactly £250k for it and we had already saved up 20% deposit. We got what I considered a fairly priced place at that time, but remember than lending was very tight during that year and we certainly had to jump through a few hoops in order to make it all happen. We could also have stretched ourselves and got a bigger place, but frankly I didn't want to. Our plan was always to buy modestly and overpay the mortgage on it as much as we could so we could own it outright within 10 years.

Now, 5 years on, we are well over half way there.. our monthly overpayments bought the loan down a little each month, but we did not readjust our payments, we kept putting a fixed amount in each month, so as well as the principle coming down, the interest would come down even more every month.  5 years ago we were paying £600/month in interest, today we are paying around just £250/month.

We've been fortunate enough to have stable employment during this time and a few pay rises along the way - nothing spectacular, but year on year it all adds up and life becomes a little easier. In the last year I've found another useful income stream, so we the day that we make the final payment will hopefully be even sooner than we initially planned. 

I just share this because I feel it just shows you the value of putting in a long term plan and sticking to it. Without taking action when we did we'd no doubt be lining some landlord's pockets with £16k/year. Not that there's anything wrong with renting - but if you're renting because you don't have a long term plan then you are indeed just perpetually throwing good money away and wasting the part of your life that you spent earning it. I've certainly squandered a lot of money and opportunity in my youth (who hasn't?) but as you get a bit older and wiser you learn patience take a longer term view on things. We've lived well within our means and sacrificed plenty of little luxuries along the way, but also we have found interests that have been life enhancing which are (almost) free. 

All this, and I still plan on stacking PMs over the next few years, in fact I would say that the mortgage plan coming to maturity has indeed given us the financial freedom to invest in PMs, as well as a degree of financial security in other ways too.

[Oldun]

Congratulations on having and sticking to a plan. Very sensible. Do plan also for a rise in residence tax (rates) though as the government starts to try to claw back all the money they have overborrowed and spent on your behalf in the past - make sure you have a war-chest for that - but well done. Get out of debt asap is always a winning strategy unless leveraged in good times. You seem to have been sensible in not getting suckered into overpaying for something too much.

[Roy]

Hear hear! From another 'oldun, well done sir.

Feels good doesn't it? 

[motorbikez]

Wise words I did exactly the same, I've been mortgage free for 7 years now. From a young man  when interest rates were cut I always paid the same amount, something in recent times that hasn't happened with interest rates at historic lows.

It will be interesting to see how the must have everything brigade cope with interest rises which will inevitably happen sometime.

[SilvergunSuperman]

Well done. We bought our house 9 years ago and have always overpaid on the mortgage despite the opportunities to reduce monthly payments over the years. In fact I think we pay a couple of hundred more a month now than we did with higher rates years ago. The result is that that we have only 7 years left of the original 25-year mortgage, and could probably pay off the remainder from savings if so desired in a couple of years.

We've seen a lot of friends and family members max themselves out for houses that they will struggle to afford if and when rates go up, some of whom are barely paying over and above the interest each month. I wouldn't be able to sleep at night in this situation. In part I think it's down to bad professional advice - you'd expect it from lenders, but we've seen it ourselves from independent financial advisers too. Out of curiosity we asked our guy about potentially paying off a £30k lump sum of the mortgage and he strongly advised against it, saying with such low rates we should use it to chase a better return elsewhere - like Chinese stocks! I asked him if he ever suggests gold to clients and he reacted as if he'd never heard of the stuff.

[Oldun]

We had 8 years left on ours and I urged that we paid off the main fixed rate interest chunk 3 years in so as to get rid of the bit where non-fixed interest starts to kick in. As it turned out, we would have been ok up til now but either way, we got it paid off and clear 3 years ago. Done and dusted. Not a big property (keeps heating/cooling costs down as well) so as to not get too smashed when they fist everyone with increasing property tax etc., because you know that's coming. Also having a small property will make it easier to sell or rent, if needed.

[motorbikez]

8 hours ago, SilvergunSuperman said:

 In part I think it's down to bad professional advice - you'd expect it from lenders, but we've seen it ourselves from independent financial advisers too. Out of curiosity we asked our guy about potentially paying off a £30k lump sum of the mortgage and he strongly advised against it, saying with such low rates we should use it to chase a better return elsewhere - like Chinese stocks! I asked him if he ever suggests gold to clients and he reacted as if he'd never heard of the stuff.

Re  independent financial advisors of course he/she would advise against paying £30K off your mortgage, they wouldn't earn any commission from that LOL.

[Pipers]

Well done, 

When we paid off our mortgage early it was like a massive weight being lifted off our shoulders, I have had 2 marriages and 2 mortgages both paid off.  You are doing the right thing it will enable you you make the correct business decisions without fear.      

[vand]

The long term plan is progressing very nicely indeed.

Since writing this last year we've knocked off another 15% from the outstanding value of the mortgage.

Additionally I've now fully paid off my (0%) credit card, so going forward we'll that bit more cash positive.

We are still in the discounted period of our fixed rate, so there is no point in overpaying it more than 10%pa as they will charge us, so we pay as much as makes sense and then stockpile the rest of cash (of course some of it also goes into PMs). The discount rate ends on Sept 30th 2018 and then on 1st Oct I'm planning to make a single huge overpayment that will then bring the outstanding amount down to the size of a car loan.  All in all, I'm hoping to have the whole thing paid off within a year after that.

Looking forward to the day we make that final payment.. I don't think it's too far off now!

[realbluegold]

Congrats! My mortgage originally was a 30-year one and with the overpayments over the last 10 years and if everything goes as expected I will have it reduced to a total of 13 years, ending before 2020  It feeels very good when you cut month after month  

[Oldun]

That is good discipline. Well done. We are about to rent out our place as my family needs a slightly bigger place for the next few years and we have found a place to rent in the nearby area for almost the same amount as what we will be getting in rent from our place. Owning your own property gives you much more flexibility. It also frees up the pennies to handle any unforeseen things that life throws at everyone sometimes.

Good luck with the coming year and do update

[KDave]

Nice work Vand, it won't be long until all of your income is yours to spend, I trust it will be used to buy even more precious metals?  

I have a very similar plan but I am at the beginning rather than the end. I have just bought a house and paid the first mortgage payment this month, 25 year loan. I have set up an overpayment to knock 5 years off the term minimum and will be paying off more where I can, with a push to pay off as much as possible from the capital within the fixed 5 year term so as to save interest and just in case rates rise.

I chose 25 years mortgage vs a shorter term as it gives the additional security if times become hard or if interest rates rocket up as my voluntary overpayment will act as a buffer somewhat, rather than having to make that payment as a minimum each month. Effectively I see the current mortgage as a 20 year term maximum, hopefully less, unless life determines otherwise. I am using 0% interest credit card over 2 and a half years to fund renovations rather than selling assets or using savings, but I have approximately 3 times as much in savings to cover the amount I am borrowing on credit. I am very cautious and always like to have a plan or some insurance in place for worst case scenario.

To pay off the credit card, I am just paying the minimum off each month and I have set up monthly savings that will accumulate to cover the remaining balance, while generating some interest. The plan is that the saved capital will be used to pay off the card at the end of the interest free term in 2 and a half years, and the tiny amount of interest generated will be used to chip away at the mortgage capital 

[vand]

8 hours ago, KDave said:

Nice work Vand, it won't be long until all of your income is yours to spend, I trust it will be used to buy even more precious metals?  

 

Maybe a bit more, but I'm quite happy with my level of PM purchasing at the moment. And besides, who knows what other opportunities will be around in 18-24 months' time. Maybe the stock market will have crashed by then and it'll be a good time to start buying equities? Maybe the housing market will have crashed and it would be a chance to move to a bigger place, which we would like to do eventually regardless. I would also probably increase my pension contributions which should hopefully benefit me greatly for when the day starts to arrive that I start to think about cashing it out. Having the extra cashflow really does open up all sort of possibilities. I'm reminded of the saying that "poor people spend their income and invest anything that is left over" while rich people "invest their income and spend what is left over". That's not to denigrate those on lower income who find it challenging to find enough to invest, but it is about the mindset that you need to have if you want to eventually make your capital work just as hard for you as you did to to earn it.

[LongScottSilver]

I am actually just extended my residential mortgage in amount and in term, to reduce my monthly payments and give me enough money to buy a Buy To Let (BTL) property. The profit I am making monthly after paying the BTL mortgage is enough to pay down my residential mortgage 17 years earlier than originally and still have the extra income from the BTL. Granted I am only 32 and not an Oldun just yet. But as we are most likely going to live to 80/85 the majority of us have plenty of time to invest in property too.

[Goldhooked]

7 hours ago, LongScottSilver said:

I am actually just extended my residential mortgage in amount and in term, to reduce my monthly payments and give me enough money to buy a Buy To Let (BTL) property. The profit I am making monthly after paying the BTL mortgage is enough to pay down my residential mortgage 17 years earlier than originally and still have the extra income from the BTL. Granted I am only 32 and not an Oldun just yet. But as we are most likely going to live to 80/85 the majority of us have plenty of time to invest in property too.

If the government continue their tax assault on landlords then don't expect it to be as rosy as you think.  And if Labour ever get in then be very afraid!

I have several rental properties and although I'm not currently looking to exit,  I won't be investing in any more.  I certainly wouldn't be risking my own house on it.  MEWing has always been a bit risky but in today's climate....you're a brave man!

[vand]

3 hours ago, Goldhooked said:

If the government continue their tax assault on landlords then don't expect it to be as rosy as you think.  And if Labour ever get in then be very afraid!

I have several rental properties and although I'm not currently looking to exit,  I won't be investing in any more.  I certainly wouldn't be risking my own house on it.  MEWing has always been a bit risky but in today's climate....you're a brave man!

Agreed. 

Anyone getting into BTL is 5 years late. The numbers don't add up.

Prices are now falling in London and it will ripple out to the other regions.

the next economi downturn, which may be closer than anyone realises, will send the overleveraged into a financial abyss.

[utoh123]

I bought my house during the 2007 crash.  It was a foreclosure. So I  did not pay retail.  I put 20% down,  lowered the homeowner insurance as much as I could, and fought the property tax assessment and won.  I am now in my 11th year.  My mortgage is 30 year 5.5% fixed.

I am happy to report that I owe  $19,376.00.   I also am paid ahead on bills by a few months.  The one bad thing is the house is in disrepair. 

[vand]

Nice going @utoh123. Placing yourself in the position of the buyer in a distress sale is rarely a bad move, and now you have a barely a car-loan sized mortgage.

It's clear that the current UK govt is tightening the noose around the BTL brigade. A lot of over-leveraged owners and investors/speculators will be hung out to dry in the next downturn, which I maintain will be much considerably worse than 2007-2009 for certain parts of the country. 

[vand]

On 14/08/2017 at 11:04, vand said:

The long term plan is progressing very nicely indeed.

Since writing this last year we've knocked off another 15% from the outstanding value of the mortgage.

Additionally I've now fully paid off my (0%) credit card, so going forward we'll that bit more cash positive.

We are still in the discounted period of our fixed rate, so there is no point in overpaying it more than 10%pa as they will charge us, so we pay as much as makes sense and then stockpile the rest of cash (of course some of it also goes into PMs). The discount rate ends on Sept 30th 2018 and then on 1st Oct I'm planning to make a single huge overpayment that will then bring the outstanding amount down to the size of a car loan.  All in all, I'm hoping to have the whole thing paid off within a year after that.

Looking forward to the day we make that final payment.. I don't think it's too far off now!

+1yr update:

Long term plan is still progressing very well.  We have overpaid as much as is possible without incurring overpayment penalties, and have reduced the principle now to a very manageable amount. We have reduced our interest payments from £207/month down to just £167/month. 

We are now 2 months away from the end our discount period, but I'm not even sure that it's worth remortgaging, as I expect to have everything paid off within a year now (work is currently paying very well!).  

We have a 5 month old baby now so we will want to move somewhere larger sooner rather than later, and the idea of having our current home all paid off is immense. We will keep this home no matter what we do going forward, and start afresh with a new mortgage if and when we do move to a bigger place. 

 

[Stu]

Nice one mate, me and the missus are starting a small venture in the next month or so. If it does well we are hoping to do something similar, she is wanting a new kitchen, I want the mortgage paid off, hopefully both achievable within a few years.

[Goldhooked]

3 minutes ago, vand said:

 the idea of having our current home all paid off is immense.

 

^This!  I know a lot of people would say invest rather than pay off a mortgage with the current low interest rates but the positive psychological effect of having no mortgage to pay is very appealing to me also.  We only have roughly a 10% mortgage left now and are overpaying so are nearly there.

Well done on your strategy, it sounds like it’s working well.

[vand]

19 minutes ago, Goldhooked said:

^This!  I know a lot of people would say invest rather than pay off a mortgage with the current low interest rates but the positive psychological effect of having no mortgage to pay is very appealing to me also.  We only have roughly a 10% mortgage left now and are overpaying so are nearly there.

Well done on your strategy, it sounds like it’s working well.

 

Yes, the strategy has worked well, but only because:

- We took decisive action when the market was still in the doldrums in 2011 and we thought the risk/reward of buying was very favourable. However it would have been easy to have carry on the "one more year of renting" like a lot of our friends did. 

- We were in the position where we had savings and so could actually put down a good deposit on a house. that itself was the result of years of financial discipline.

- We budgeted, and we stuck to our budget.

- We were disciplined enough to make the monthly overpayments, each month, every month. 

 

We have been lucky that it has worked as well as it had, but there is also a saying that luck is when preparation meets opportunity. Now I see opportunities in other areas (PMs, commodities).. I can't know for sure that they won't go lower, but I deem the risk/reward to be highly favourable over a medium-long time frame if you employ disciplined accumulation strategy. 

Now we are faced with a doubled edged sword if we want to move.. we will be competing to buy in what I know in my heart is a very overpriced market (even despite the recent softening). But at least having your current home paid affords us the luxury of not having to be involved in a chain, and/or biding our time until we feel there is a good deal on the table.

 

[sixgun]

Getting rid of a mortgage is a very positive step. The banks only need half an excuse to steal your home. They lie, they forge, they commit any and all crimes in the process. Absolutely make sure you have all the documents - everything. You want every note and instrument they have ever sold or held on the basis of the alleged loan they made. See with your own eyes the bank or building society are out of the picture. Absolutely and irrevocably have then put in writing that is legally binding they have no claim whatsoever on the property and that no-one else does. i know of cases where banks still have a claim even though they have been paid off. The banks do not lend you anything anyway, it is a most massive scam but they have all the guns and the banks run the legal system. Judges are bankers and sit on the money changers' bench. You can never get full title to any land in England - the Crown owns all land. What you never want is criminals dressed up as bailiffs knocking on the door.

[vand]

A good article about overpaying mortgage vs investing your income: 

https://financialmentor.com/investment-advice/pay-off-mortgage-early-or-invest/7478

(The blog is excellent, recommended reading, although he is selling stuff. The's an accompanying podcast too, which I'm working through - very, very good stuff).

[vand]

Done & dusted. Final payment made! TBH it has still to sink in.. I don't have any particular "weight off my shoulders" feeling. I guess I've been anticipating the day for a while now, so it just feels like another day in our long term plan. 

With this cornerstone of our long term financial plan in place,  the focus now shifts to accumulating more investable assets. 

Some numbers:

Total principle paid: £187,500 (75% LTV)
total interest paid: £30,450
Total time: 7yrs 4 months
Interest rate: 3.89% yr 1-2, 2.99% yr 3-7, 4.99% yr7>