In September of this year I took on a huge responsibility by smashing every middle aged journalist’s point of view. I did this by working hard, being entitled, being a politically correct snowflake, eating a shit tonne of smashed avocado on toast and still managing to get on the property ladder before 25.
I bought a house! I also killed the diamond/ golf/ breakfast cereal industry so it’s been a busy millennial year!
The amount of money I now owe to someone else is a freaking heavy burden to bear! For the first time in three years I’ve actually got to worry about money again. I can’t escape to some island for three months just because I fancy it- hell I can’t even dream about it anymore! Because the financial ruin I’d bring upon myself is scary. This opportunity of owning my first home is a big one and one I’d like to not mess up. I’ll be working for the foreseeable future which means this big step both brings me close AND further away from financial independence.
So what I’ve decided to do to ease my sense of entrapment and sheer panic at being beholden to ‘The Man’ is to rid myself of this debt ASAFP. I have a plan. As always it has been spread across a few Excel Spreadsheets with a few basic formulas to help me along and make me feel prepared. It’s been colour coded and cells have been given appropriately thick borders. The signs of a true control freak.
In the spirit of calling my wishes into being I will be writing this goal down on the internet and checking in every year to make sure I’m on track (Let’s be honest I’ll be tracking it weekly but you don’t need to read about it every time)
I will pay off my mortgage in 3 years.
Now how in the eff do I expect to do this you ask? Well I’m going to continue working hard in my job, earning the trust and respect of my peers whilst constantly improving myself in a professional setting. I’ll also continue to work hard at saving money. In 3 years I’ve saved over £75,000 and so this goal is realistic for my situation. I understand there’s a big argument in the financial community about paying off your mortgage early because mortgages are typically given with low interest. I’ve looked into it all and I understand that what we’re doing isn’t in the best interest of our overall capital and we’ll likely lose some potential earnings that we could have gained from investing the same money instead. However the whole reason I became a frugalista was to have the freedom to make these kinds of decisions with my money! I love the idea of not owing any money to a bank, that my house can never be taken away from me if I lose my jobs etc and that peace of mind is of greater value to me than a couple thousand pounds over the course of my life.
There’s a few things I’ve done in the run-up to this that will make this journey as easy as it could be.
- I’ve saved a lot of money that meant I had a downpayment of around 40% with my other half Different-P.
- We chose a house WELL within our budget. We were offered around £360,000 worth of mortgage however we bought a house for £145,000 that meant we have a lot of flexibility in paying it back.
- We spent a lot of time (10 months) finding and waiting for the perfect house that would tick every box on our list in an area we’re confident will increase in value.
The maths (or ‘math’ if you’re American)is as follows:
I currently owe £47,500 on my house (buying with my partner means that only half is directly mine to pay)
My half of the mortgage payment is around £500 per month.
This leaves £713 per month left to pay back each month in order to make the overpayments and be mortgage free in 2021.
We plan to do a few things to the house to both increase it’s value and increase the money we can save/make from it which I’ll detail in another post but basically I need to make enough money for the next 3 years to pay off my usual bills and have £1,300 spare each month for mortgage payments.
Why 3 years?
The caveat is that we can only make a 10% overpayment each year and as we overpay this amount becomes smaller and smaller. If we overpay more than this amount then we’re charged a fee. At 3 years, the fee we would be charged for overpaying is actually LESS than the interest we would pay to continue on for another year so even with the fee we’re saving money in interest so we decided to pay it off at the year 3 mark.
Back Up Plan
As an afore mentioned control freak I like to be prepared for most outcomes. Should the worst happen like illness, market crash or job loss we have two backup plans.
- Pay off in 5 years- Our fixed interest period on the mortgage is 5 years. After five years we can pay off the whole sum without a penalty fee and if we find we’re struggling with our finances or would like to extend the 3 year period for whatever reason we will extend it to 5 years meaning that ew have more time to grow that amount of capital.
- Pay off in 10 years- Worst case scenario, this £500 we pay every month if we were to make no overpayments for the next ten years would have paid off our mortgage and we still have the option to continue on this payment plan indefinitely. This option is a favourite if our investments are doing really well and would serve us better to remain invested.
So there we have it! Here’s our big plan. Do you have anything similar?