We're not going hardcore on the mortgage paying off, but being in the UK where rates are variable or only fixed for a few years, it's something I've been working towards, so I'd love to join in?
We've had really historic low rates here, yet I remember in the 90s my parents mortgage climbing to double digits! Something like 15%. Can you imagine paying 15% of your total loan value to the bank every year?
We started in 2009 borrowing £157,000. That mortgage was at 5.49% and we were paying about £24 A DAY interest. In the five years we had that mortgage we paid £39,000 in interest, and paid of £11,000 principle. Yikes!
Managed to get a much lower rate when that mortgage expired in 2014. I also chose an offset savings account, where you savings reduce the mortgage balance on which you pay interest, as even at 2.49% there were no savings accounts which could beat it, and we keep 6 months on hand in cash at all times.
Suddenly our interest payments were more like £5 a day, so we made huge inroad into the debt. In the two year life of that deal, we paid £3,340 interest, and £12,000 principle. Compare that to the first scenario - where in 5 years we only paid of £11k and paid TEN TIMES the interest!
This is when I got quite focussed because I realised that extra payment while rates were so low would have a huge impact on the principal. I got determined to pay it off before rates went up. Note, I was still investing for maximum tax relief (SIPP pension), but not taking advantage of all tax sheltered accounts (ISAs).
I paid off about £50k extra principal from saving our income in mid 2016, when we were again due a new mortgage deal. This also brought us to under 60% Loan To Value ratio, meaning we could get a rate of 1.5%. Currently we are paying £2.50 a day in interest - down from ten times that at the beginning. I also decided to shorten the amortization from 30 years to 15 years. Combined with another offset account, we are reducing the balance by about £450 a month.
I consider myself so lucky to live in this time of low interest rates. If the cycle repeats itself I should be piling up the savings as rates go higher as well.
2009 Original balance: £157,000
2017 Current balance: £81,850. I'm amazing to see £1k knocked off nearly every other month.
We can overpay by 10% per year without penalty. The deal expires in mid-2019, at which time we can pay it all off with a lump sum without penalty if we choose.
So my priorities are thus: maximum tax relief on Retirement account first and foremost. Then a split between ISAs (stocks and shares tax sheltered savings accounts) and paying off the mortgage. You guys are really inspiring! Thank you.
