With our help, this couple paid off their £85,000 home loan in eighteen months. We show you how they murdered their mortgage.
I love my job, because all I do is write articles aimed at helping people with their money. As this is also one of my hobbies, it hardly feels like work at all.
What's more, I'm delighted to hear from Foolish readers who are kind enough to thank me for helping them to make better financial decisions. This week, I'm chuffed to bits, because "Sue from Surrey" emailed to tell me that one of my articles changed her life.
In January 2005, Sue and her husband had an £85,000 mortgage which was scheduled to be paid off in 2025. However, after reading Pay Off Your Mortgage In Five Years, they decided to tackle their £85,000 home loan head-on. I'll let Sue tell her story in her own words, as I couldn't put it better myself:
"Our mortgage was £85,000 when we started our endeavours at the beginning of last year.
Your original article really was key in the thought forming that we could actually pay off our mortgage early. I don't believe many people even entertain the idea that they can do enough to make a dent in it. We certainly didn't prior to reading your inspirational writing.
The very first thing we did was to transfer our mortgage to an offset (flexible) mortgage with Abbey. This took some time to achieve (about eight weeks) but, once set up, we could view the details online. We could easily transfer money from our current account, also all online, and each time that we did, we could see the amount of interest saved over the duration of the loan, and the consequent reduction in the time left to pay it off.
To start with, at least, it was quite startling what difference a small amount made, and just knowing the amount of interest saved by one deposit spurred us on to save more. On the Abbey website, there is a "Show me" button in the one-off deposit process, so you can see the effect a sum of money deposited will have both numerically and graphically (line chart showing outstanding balance against time) before putting the transfer in place.
We already used a computer to track our money on a double-entry book-keeping package. Our next step was to look at our budgets and cut them where possible, along with any unnecessary direct debits. We found we were paying more than we needed to for personal, travel and home insurance. We also checked our utilities payments were competitive. We found out about Voice over IP for making free PC-to-PC calls. We switched our land-line phone to a cheaper tariff and the mobile to "pay as you go", only using both when absolutely necessary (it is amazing how many unnecessary calls/texts you make when you think about it!).
Budget-wise, we worked out the minimum amount we could spend in a week and tried to stick to it. Neither of us drive but had used taxis quite frequently, especially when food shopping. By getting to know the bus routes (there is one through our road!) and times, we slashed our taxi spending and planned trips better.
Additionally, we made sure to do one big monthly food shop online. That way, we qualified for free delivery at Sainsbury's by spending over £70 and, much more importantly, only bought what we needed. Clearly, being able to see the running total as you add an item to your basket is very useful and stops you from being sucked into impulse buying!
We began planning the week's meals more efficiently, so as not to spend too much or resort to takeaways when there was nothing in the house. I enjoyed looking around charity shops for bargains, had quite a lot of clothes already, and otherwise made do with what I had. We went to the library instead of buying books, CDs, magazines and DVDs -- you'd be amazed what you can find there!
We switched our current account from HSBC (paying 0.1% a year) to Alliance & Leicester (paying 5%). It gave us a free overdraft facility for a year, so we fully utilised this by transferring the excess into the mortgage. Of course, you have to budget carefully to ensure you don't go over the limit and end up paying charges!
We applied for a 0% balance-transfer-and-purchases credit card (Morgan Stanley) and ensured the spending on this card also went to the mortgage to gain interest before the 0% period ran out. These sound like small things, but they do add up: the latter earned us £150 -- effectively, free money.
The next step was taking a careful look at our possessions. It is surprising what you can do without and what perhaps you no longer see around your home because it has been there so long. We sold a great deal on eBay, including books, CDs, DVDs, stamp albums, ornaments, furniture, unused kitchen equipment, jewellery and various equipment from hobbies no longer pursued.
We held a car-boot sale with a friend, which was useful for shifting the less valuable items. William Morris once said have nothing in your house that you do not "know to be useful or believe to be beautiful" and that became a very useful piece of advice when deciding whether to sell something. The local paper is also a useful place to sell bulky items through, although we have increasingly found that eBayers are also willing to travel great distances for a bargain.
Raising additional income was trickier. My husband was able to write some articles through his company magazine which proved quite profitable. I looked at my interest in photography and art and made a smaller contribution by selling a few photos and handmade cards. We both also did more overtime in our jobs, but otherwise did not pursue the possibility of taking on a second job, which was talked of at one point. The important thing to remember is that every penny really does count and you will reap the benefit of throwing all your spare cash at your mortgage.
At this point, we also took our existing savings, including two shares ISAs, and added those to the mortgage pot, soon realising the benefit of avoiding paying tax on any savings, and effectively earning a higher rate of interest. We kept all our savings in our offset account, rather than reducing the capital. You should remember to do this with at least some spare cash to cover any unexpected emergencies. The amount rather depends on how strict you can be about not drawing any money back out if it is readily available!
When you have a goal such as this, you find that opportunities really start to present themselves to help you on your way. I guess our aim was never far from our minds and we also entered a few competitions -- you never know, you might be lucky. We managed to win some cinema tickets, two crossword competitions and even free entry to Crufts! The latter tickets I sold on for £100.
I would suggest you enter free competitions -- and I don't include entering the lottery in this advice, as you would be better off putting your stakes directly into your mortgage. One great piece of luck which helped us reach our target earlier was my husband's company shares suddenly performing well. Of course, the temptation would be not to include this windfall and instead treat ourselves, but by putting the whole amount into the mortgage, we chopped a year and a half from our remaining term.
Although we have now paid off our mortgage, we have kept it open in order to defer paying the redemption fee -- remembering also that this is the cheapest loan you will ever get and our circumstances being such that we might need to utilise part of it again in the short term.
We also do still have a 0% credit card to pay off next July. As this money went towards the final push to pay off the mortgage, we now have this to save up for again. I guess it will take a while to realise that the mortgage direct debit is no longer going out. We also have to replenish our savings before going mad with our money and starting to enjoy it more.
Paying off our mortgage nineteen years early has given us a tremendous sense of freedom and possibility for the future -- we are both in our thirties and now have no mortgage worries -- fantastic. The most important thing we learnt, although it sounds a cliché, is what we truly value in life and how material possessions really don't mean that much. For example, not relying on buying something to make you happy, but instead going out for a walk in the countryside."
Sue, I take my hat off to you and your husband -- instead of taking five years to pay off your mortgage, as I proposed, you did it in an astonishing eighteen months. Let's hope that you become an example to other Fool readers. Here's to Sue, everyone!
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