Why Pay off the Mortgage?

“Never spend your money before you have it.” – Thomas Jefferson, American Founding Father.

At first it seems a bit conflicting that we should pay off a loan which has an interest rate of 1.99%. Especially when we can get a much higher interest rate in some regular savings accounts, the stock market, or bonds. The mathematically minded amongst you will realise that paying the money into a regular saver at 5% will give you an extra 3.01% at the end of the regular saving term.

1

Follow the Maths!
The maths says that we would be better off if we saved money elsewhere and pay off the mortgage once a year. What maths doesn’t say is what’s going to happen to interest rates in 4 years’ time (when we need to re-mortgage), or what house prices are doing (we could be stuck in negative equity.) These are real concerns with things like Brexit coming up. The stories of negative equity certainly bringing the most fear. In this situation banks may tell us that we can’t afford a cheaper fixed rate mortgage and then we are stuck on a standard rate mortgage which always has higher interests rates than any fixed term deals. While this sounds stupid in the extreme, it can and has happened to ordinary people like you and me. Instead of paying £600 on a new fixed term mortgage with the increased interest rates, we could end up paying £750 or more on the standard tariff mortgages. A lower borrowing amount means a higher chance of not getting into negative equity and provides
some security in our lives.

1

The Magic of the Hustle
What the maths doesn’t tell you about is the plan for once we reach FIRE. We won’t be heavily invested in the stock market; we will be heavily invested in the hustle. What we describe now as our side hustles will become our main hustles. For this to be successful, we need to reduce our monthly
and yearly expenses as much as possible. We will be doing this quite a few different ways but the big
one is the mortgage. Not having to make £6,500 extra per year to get by will be a massive help to
our plans. It brings our expenses down from around £21,000 per year to £15,000 per year.

Moving the Goal Posts and Declaring Victory
By lowering our expenses, it becomes much easier to earn the money we need with side hustles. The stories around EW sniping and matched bettingmatched betting shows it is possible to make £2,000 per month fromthem. Add in our extra bits and pieces, it shouldn’t be too hard to have guaranteed income in case
one or more hustles fail. To quit my job now and focus on the side hustles doesn’t seem right to me as I would be betting the house on them working. Once the mortgage is paid off, the bet swings in my favour with a much lower threshold for declaring victory.

Would you guys do the same in our position?

5 thoughts on “Why Pay off the Mortgage?

  1. Sam

    Interestingly this is the second post that I have read recently which recommends paying off your mortgage. The other one was on thehumblepenny.com. Everything else that I have read recommends investing, although all of those blogs or podcasts have been American. We’re just looking forward to the day – in about seven years time – when we don’t have to pay this every month.

    Like

  2. We’ve always overpaid the mortgage and whilst I wish I’d known about FI back when we first bought – hindsight is a wonderful thing eh? – getting the mortgage down remains a big factor for us. It’s the safety aspect of having enough equity to survive the possibility of the return of 6% interest rates and a house market dip.
    Always safety and security first what with having the kids and me being a low earner.
    Plus, I always think that the savings/investing/mortgage discussion often forgets that 2% on +£100,000 is generally more than 5% on £10,000 when you are unable to save large amounts and boiler trouble can wipe out your savings.

    Like

    1. That is a really good point regarding the 10k. We have an emergency fund for things like boiler trouble (just go a new on in Dec 18!) so we are pretty covered I think. And yes you are right, safety and security first especially with Littlest MF.

      Like

  3. Pingback: The Full English – A time for reflection – The FIRE Shrink

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s