'How I became mortgage-free within 8 years'

Capri

http://homes.yahoo.com/news/became-mortgage-free-within-8-years-164000617.html

'How I became mortgage-free within 8 years'

I remember the moment I decided to pay off my mortgage early. I was walking into my gym in August 2007 and saw a sign that read: "Clear your mind of can't." The sign was intended to inspire my workout, but my mortgage was on my mind. Earlier that day I had opened my most recent statement and was shocked by two things:

1. I had purchased my house exactly three years earlier in August 2004 after applying a 20-percent down payment and taking out an adjustable-rate 30-year mortgage in the amount of $228,550. After three years of payments (a total of $49,045) my loan balance stood at $216,650, only $11,900 lower than the original...............................

Grudaire

So the moral of the story is that anyone who is paid $50-$100k a year should have no problem repaying a $220k mortgage over 8 years...

seamus

As soon as I saw the "8 years", I knew it was a U.S. article

To put it in Irish terms:

I calculated all of my monthly expenditures on a spreadsheet and came up with $4,000 a month. I decided that any income I made above and beyond $4,000 would go directly toward my mortgage

€4,000/month after tax translates to a salary of €78k before tax.

I think if someone is earning in excess of €78k and has a €216k mortgage, they're in a pretty good place.

More typical in Ireland is salaries of less than €50k and mortgages upwards of €300k. So 8 years is unachievable for the majority.

That said, much of the advice is pretty sound - taking advantage of bulk deals now to save in the long run, immediately banking any "bonus" earnings against your mortgage instead of spending them, and otherwise focussing on throwing spare money at your mortgage where you can find it.

But this guy's case is a special case. I see no mention of children, which gives him ample free time to spend at "focus groups" and "answering online surveys". And can you imagine a gym in Ireland doing a "€20 a year for life" offer?

The most incredible thing about the article is that a man who earns $100k some years and had $60k in a down payment saved up thought that taking out a 30 year mortgage for $250k was a sound investment.

L1011

$10-15 a week on surveys isn't even easily possible here; I've got about €700 in total over eight years from doing them. There's also next to useless reward credit cards here, whereas in the UK I was able to rake a few hundred per year off mine.

Bigcheeze

"After three years of payments (a total of $49,045) my loan balance stood at $216,650, only $11,900 lower than the original............."

This is the sort of line that financially illiterate people come out with all the time.

If he can use the spare cash to get an after tax investment return that exceeds the mortgage interest rate, then it's generally a bad financial decision to pay off your mortgage early. In the case of this guy it sounds like his mortgage rate was quite high >6% so it's a lot more challenging to clear that hurdle.

However, anyone on an Irish tracker rate of 1.x% would be off their heads using spare cash to accelerate their mortgage payments.

cletus van damme

Bigcheeze wrote: »

"After three years of payments (a total of $49,045) my loan balance stood at $216,650, only $11,900 lower than the original............."

This is the sort of line that financially illiterate people come out with all the time.

If he can use the spare cash to get an after tax investment return that exceeds the mortgage interest rate, then it's generally a bad financial decision to pay off your mortgage early. In the case of this guy it sounds like his mortgage rate was quite high >6% so it's a lot more challenging to clear that hurdle.

However, anyone on an Irish tracker rate of 1.x% would be off their heads using spare cash to accelerate their mortgage payments.

while you are correct , you are missing the personal sense of happiness one (me) feels about being debt free.
I personally would clear a debt (and have done) even if long term I would earn more my investing and paying the loan gradually.
I just value being debt free over small/medium returns.
I'm sure i'm not alone .

Scortho

seamus wrote: »

As soon as I saw the "8 years", I knew it was a U.S. article

To put it in Irish terms:

€4,000/month after tax translates to a salary of €78k before tax.

I think if someone is earning in excess of €78k and has a €216k mortgage, they're in a pretty good place.

More typical in Ireland is salaries of less than €50k and mortgages upwards of €300k. So 8 years is unachievable for the majority.

That said, much of the advice is pretty sound - taking advantage of bulk deals now to save in the long run, immediately banking any "bonus" earnings against your mortgage instead of spending them, and otherwise focussing on throwing spare money at your mortgage where you can find it.

But this guy's case is a special case. I see no mention of children, which gives him ample free time to spend at "focus groups" and "answering online surveys". And can you imagine a gym in Ireland doing a "€20 a year for life" offer?

The most incredible thing about the article is that a man who earns $100k some years and had $60k in a down payment saved up thought that taking out a 30 year mortgage for $250k was a sound investment.

Or he bought a house that he could afford.
50k salary and 300k mortgage is unaffordable, always has been and always will be.
It stretches you too much.

dissed doc

Scortho wrote: »

Or he bought a house that he could afford.
50k salary and 300k mortgage is unaffordable, always has been and always will be.
It stretches you too much.

50k is fine if you are paying 20-25% income tax like , but in ireland people on 50k are paying 50-60%+ income tax (all levies) to support people on 20k who pay virtually nothing.

m5ex9oqjawdg2i

seamus wrote: »

As soon as I saw the "8 years", I knew it was a U.S. article

To put it in Irish terms:

€4,000/month after tax translates to a salary of €78k before tax.

I think if someone is earning in excess of €78k and has a €216k mortgage, they're in a pretty good place.

More typical in Ireland is salaries of less than €50k and mortgages upwards of €300k. So 8 years is unachievable for the majority.

That said, much of the advice is pretty sound - taking advantage of bulk deals now to save in the long run, immediately banking any "bonus" earnings against your mortgage instead of spending them, and otherwise focussing on throwing spare money at your mortgage where you can find it.

But this guy's case is a special case. I see no mention of children, which gives him ample free time to spend at "focus groups" and "answering online surveys". And can you imagine a gym in Ireland doing a "€20 a year for life" offer?

The most incredible thing about the article is that a man who earns $100k some years and had $60k in a down payment saved up thought that taking out a 30 year mortgage for $250k was a sound investment.

When you speak of mortgages of €300k for a salary of €50K, are you refering to a single person or is this a joint wage?

loyatemu

dissed doc wrote: »

50k is fine if you are paying 20-25% income tax like , but in ireland people on 50k are paying 50-60%+ income tax (all levies) to support people on 20k who pay virtually nothing.

no they're not - the marginal rate is 52%, but you don't pay that on all your income. Effective rate for a single person on 50K is about 30%.

the moral of this story seems to be:

1. Get a well paying job
2. Take out a modest mortgage
3. live frugally and don't have kids.

seamus

Scortho wrote: »

Or he bought a house that he could afford.
50k salary and 300k mortgage is unaffordable, always has been and always will be.
It stretches you too much.

Indeed.

Whether it's unafforable is moot, I'm just saying that it's typical of the situation many Irish mortgageholders now find themselves in. So the article is of limited relevance.

@ Iamxavier, that €50k would be the combined household earnings. Obviously you wouldn't get a mortgage for €300k on that wage now

drumswan

cletus van damme wrote: »

while you are correct , you are missing the personal sense of happiness one (me) feels about being debt free.
I personally would clear a debt (and have done) even if long term I would earn more my investing and paying the loan gradually.
I just value being debt free over small/medium returns.
I'm sure i'm not alone .

You can get that sense of happiness by not getting a mortgage in the first place.

gaius c

drumswan wrote: »

You can get that sense of happiness by not getting a mortgage in the first place.

Yep, the bliss of the Irish rental market is recommended by doctors worldwide for stress relief.

drumswan

gaius c wrote: »

Yep, the bliss of the Irish rental market is recommended by doctors worldwide for stress relief.

My last three rentals in Dublin have been stress free. If the situation becomes unappealing you can simply change it, unlike the poor sods stuck in negative equity mortgages.

gaius c

drumswan wrote: »

My last three rentals in Dublin have been stress free. If the situation becomes unappealing you can simply change it, unlike the poor sods stuck in negative equity mortgages.

I'm talking about both landlords & tenants btw.
The changing of the situation is part of the stress. I have now lived in 4 different places since 2009 and unless you're a student who can pack all their possessions into a single suitcase, moving house & cleaning the previous house is a serious enough undertaking.

If you're a landlord, any changeover is a mess as you don't know how many thousands will need to be spent to bring the place back up to scratch.

pwurple

We managed similar on our last mortgage, when both employed, no children, no cars. We paid off our first mortgage in just over 10 years rather than the original 25 year by overpaying it each month, and moving to better tracker rates as they came on the market. Sometimes it's was just 50 quid, sometimes it was a bonus from work. Savings policies were generally offering really terrible rates at the time, unless you locked down the money for a decade, which we didn't want to do. so we chose mortgage overpayment to decrease the term. We ended up mortgage free for a year or two, built up some savings then by banking the mortgage repayment amount in a high-ish return account. It was very good to sell a house at close to the bottom of the market and still be able to use the entire proceeds (minus fees) as a deposit for another house. If we had been paying that mortgage at original rate we would not have been in that position. We wouldn't have had much equity, if anything in it, as the capital value had decreased.

It's a totally different situation for us now. New home has <50%LTV mortgage fixed rate for 2 years (on a terrible rate compared to the good times, but the best one we could get)... We have a child who sucks up a boatload of money in childcare, plus another on the way. You just can't get a childseat onto motorbikes, so we got 4 wheeled vehicles. Don't know if we would ever manage to overpay this one at all, but it lives in the back of my mind as something to consider if we could ever afford it.

I do think it would be madness to overpay mortgages on any investment property (tax implications). But I don't consider our primary residence to be an investment property. It's our family home, and the security of residing in it long term is our priority. But just in case it ever needs reroofing, underpinning, improvements or an extension in the future... or something changes like job loss or an injury/health damages our income, we would hope to develop maximum equity as a safety net. It provides more flexibility for any unforeseen outlays or renegotiation of terms.

Mrs OBumble

loyatemu wrote: »

the moral of this story seems to be:

1. Get a well paying job
2. Take out a modest mortgage
3. live frugally and don't have kids.

It worked for me - I paid off the mortgage on a 3brm semi-d with off-street parking in a popular location that rents well (overseas) in seven years. A good part of that was having two flatmates for the first two years, being lucky with interest rates (went from about 8% to 4% in my first two years). and convincing the bank I was respoinsible enough to have a revolving credit arrangement, which meant no fees for early payments.

Of course as soon as it was paid off, I drew a bunch down again to travel with, but that's another story :-)