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Paying off My Mortgage Early
It’s June 2019 and I hate debt. So I have a plan to be mortgage free in the next few years. From the moment I discovered the concepts of financial freedom and financial Independence in May 2017, I become obsessed with paying off my mortgage early. I have talked to a few other people from various places around Ireland about the topic of paying off your mortgage early. I found a mixed bag of people. Some are happy to plod along at the normal pace, others see the benefits of paying off your mortgage early – I have even talked to a handful of Irish people who say that it’s a bad idea.
Should you pay off your mortgage early?
No. But also yes. It depends, on you and what you want. OK, I secretly love this argument even though I know it doesn’t have a direct answer, there are two distinct sides to the same coin if you will. The first, our rational and logical side that looks at the cold hard math, the second our emotional side that craves stability and security.
Why you SHOULDN'T pay off your mortgage early.
The argument against paying of your mortgage early can be simplified like this. A mortgage is probably the cheapest loan you will ever have. Let’s say that you have a monthly sum of money to overpay your mortgage with. However instead of paying it off your mortgage you instead invest it in stocks, shares, peer-to-peer lending platforms or any combination of investment vehicles. On average, over a period of ten years let’s say, you would earn more interest on those investments than you would save by paying off the mortgage early. Of course, that doesn’t factor in all the risks of investing.
Why you SHOULD pay off your mortgage early.
This side of the argument is arguably a psychological one but also has a maths factor.
First the maths is pretty clear, overpaying your mortgage by just a little every moth reduces the principal and you will save a surprising amount of money in interest payments over the long term. Yes, we established above that you could earn more money by investing your over-payments. However, over-paying a mortgage is risk free. You are guaranteed to make those savings and you can use a calculator like this one to see just how much.
Secondly, the psychology. The very idea of owning my house outright with no monthly mortgage gives me an enormous sense of security, freedom and happiness. That feeling alone is enough to silence the mathematically rational voice in my head that says I should be investing the money instead. Imagine what
How much is left on my mortgage?
All figures relate to June 2019
What's my projected payoff date of my mortgage?
My mortgage free date is 31st December 2025. This calculation assumes no change in interest rate and a minimum monthy overpayment of €500. I actually hope to beat this target.
Because my over payments have reduced the principal amount of the loan, my monthly payments dropped from €750 per month at the start of the mortgage to €589.25 per month at the time of publishing this article. So each time I over pay I have that little bit more cash in my pocket, which I can use to slightly increase my over-payments. Some months I pay off a little extra if I have cashed in my spare change jar, found money (yes I am serious) or sold more of my old crap on adverts.ie.
Calculating your mortgage payoff date is a very useful exercise because it sets a very clear and achievable goal in your future. It clearly defines a reward for the steps you take. Do you want to try? I used this calculator here.
Get a better interest rate by Switching Mortgage
I tried and failed to switch mortgage three times in one year between April 2018 and March 2019. First two times were with Brokers and third time was Ulsterbank. The reason I failed? My employment situation has changed a fair bit since I first got my mortgage. When you switch mortgage the bank looks at it as a new mortgage application so even though I got the mortgage in 2012, never missed a payment and can demonstrate that i have been overpaying my mortgage for 2 years – they said no.
First two times I was deemed “below threshold” but the third time it came down to one single piece of paper. They needed two P60s and I only had one because I wasn’t in the job long enough. (fixed term contracts need to be renewed twice folks!
But I am not giving up. I am working towards getting all my paperwork, contracts and time in the job sorted out so I can prove my income. Watch this space!
What's my plan for life after a mortgage?
Well, I am looking for suggestions on ways to celebrate if you have any? Comment below. But when the day comes and I can officially say that I am mortgage free I will be treating myself and my friends to huge sushi dinner because I adore Japanese food!
I will try to get another mortgage. WHAT?! Yes, its sounds completely masochistic, all that effort to become mortgage-free only to attach another ball and chain to my ankle.
However, my primary principal residence will be paid off in full. I will have the safety and security I want. The next mortgage will be used to purchase an investment property which will generate a passive income for me and keep me busy with more DIY and gardening.
2025 is far away though so when the time comes, I will also considered alternatives. For example I can refinance at the end of the mortgage using an equity release product. This will effectively give me a very cheap loan which I can use to invest back into the property. I am thinking attic conversion, kitchen extension and an extra bathroom in the house.
The other option is to turn my current house into my “investment property” and buy a residential property for myself somewhere like Wicklow or a more rural setting than my current place. So I can… own a pet pig.