hey if you decided to become Mortgage-free, then seriously massive congrats. See we became Mortgage-free in 7 years
from a 25 year mortgage, we went from 25 years to 16 years to 12 years to 10 years and
then to 7 years and for us for the big motivation was that paying off the mortgage was the Big domino, the one thing that if we knocked it down pretty much
knocked down into everything else and a reason for that is because one of the
big metrics when trying to work out when it takes you to become financially
independent is and then what are your ongoing expenses? So we knew if we got rid
of that expense the living expenses, then pretty much our expenses would be
typical ongoing expenses such as food, electricity and so on. So the mortgage
became an obsession and we wanted to get rid of it but this an ongoing debate all
the time about should you pay-off your mortgage or not or should you invest through the stock market? I’ll go on and explain explain what I think you should do
later on in this video but first I’d like to introduce myself as Ken from TheHumblePenny.com and FinancialJoyAcademy.com What we do on this channel is to give
you the tips, insights, hacks for you also to become Financially Independent and
experience a life of Money Joy. So let’s dive straight in and begin to kind of
unpack what this mortgage idea is and how you can go about paying it off
for yourself. I’d love to bring your attention to two things you should make
sure you grab. Number one is that I’m sharing with you our personal
custom-built mortgage amortisation spreadsheet. This is a spreadsheet we
used every single week, weeks and months to kind of analyse what the overpayments
we make on our mortgage would become , so we could see it ourselves and become so
closely intimate with our numbers. The next is that you should absolutely make
sure that you subscribe to the FREE Course called ‘The Practical Money’ course, which I’ll link to also later on this course essentially will help you find
but extra money you never think you have but really do exist in your life those
bits of monies that will help you make some game-changing Overpayments, which
we’ll cover again later on in this video. So in order to really start targeting
your mortgage as something to pay-off you’ve got to really understand what a
mortgage is and how it really works how it really works is so important, okay. So
what is a mortgage? We all know a mortgage is a long term loan. But what is it
really? So to you and I, it’s something that sits on our Net Worth as a
Liability. Something taking money away from our pockets. But in the eyes of the
bank the mortgage sits as an Asset. It’s something that makes them money, okay? So
the arm wrestle we have with a bank is for us to find out a way of not paying
them as much money over the life of that mortgage because remember the only
reason the bank will give you a mortgage is because they know they’re going to be
getting some interest, which are returns for them on their money, okay? So our goal
is to try and minimise as much of that money in interest that were paying out
whilst also cutting down on the length of the period that we have that mortgage
for, okay? So how does a mortgage work? Now a mortgage is made up of two main
parts – the first is the Principal amount which is the money you borrowed and the
second is the Interest element. So to really illustrate you see I’m going to
go out to the back of my house and draw you a graph :). Okay guys, welcome to the back of my
house, where I’m gonna, explain to you how a mortgage actually works, okay so this
is me getting a bit geeky but this is really important right. So when you get a mortgage let’s say this is just this is the Balance (£) you have on your
mortgage so this is from zero to about 250k let’s say you’ve taken out a two
hundred fifty thousand pound mortgage. This is the balance and on this
side here you’ve got Time (years), which is the period over which you’re gonna pay off
this mortgage for- from zero to 25 years. How does it actually look when you take
out this mortgage? Let me explain to you what the graph actually looks like. It
looks something like this, okay? You see that curve there? So you’re probably
thinking okay why does that curve look like that? Why isn’t it just a
straight line? Why isn’t it just like you know a straight line down to here? Now this is really important. Here’s why it’s not a straight line. The reason it’s
not is that the minute you take out a loan here at Point Zero, yeah that
loan the bank starts to charge you an interest immediately but when about bank
charges your interest, they don’t just take the interest and put it in back
pockets as it were they take it and they add it back to your loan, okay? So notice
how this is almost increasing but kind of staying flat almost. The reason for that is because your balance in some ways
doesn’t really start to reduce because the bank is at this early stage they’re
just paying off, the money you pay each month is going towards them paying off the
interest i.e. their returns, okay. Because
mortgages work in the same principle as compounding interest when we talk about
compounding for investing the minute they add that interest to your principal
amount the principal and the interest start to generate further interest for the
bank. So every single month you make a payment, let’s say you paid a balance, let’s say you’ve paid 2,000 pounds, for example, hypothetically. Before you make that payment the bank adds on to the £250,000
loan, they add on interest, let’s say they add on say £400, okay plus then you
make your payment and then the difference goes on to generate further
interest okay let’s say that generates another 400 and that gets them added
again to the balance that’s left over. So that’s why this curve looks the way it
does, okay because over time there’s an element of interest at work every single
time, okay then so that interest every single time they have the interest it
generous further interest. So your goal and this is what we did is to reduce the
principal amount as quickly as possible through overpayments and by making those
overpayments you’re cutting down on the amounts that they potentially could
charge an interest on and this curve stops being quite as curvy because it’s
not building up as much interest the momentum for interest is not building up
as much as it should for this curve to start to be like this over time so
what you really want is if you’re paying off your mortgage early is for this
to start to look a bit like this so kind of that you pay off say over 10 or even
15 years, for example, okay that’s how you want it to start to look. This is
exactly how mortgages work so remember the key thing here is at the beginning years you’re mainly paying interest if you do nothing, right. Even if you did
something you are still mainly paying interest but you would be paying a lot more
of your principal off and that over time gradually reduces the amount of interest
you pay off and also reduces number of years on your mortgage, okay. So there you have it, that’s how mortgages actually work. So we’ll now jump in and explain to you
further some of the hacks we’ve used such as overpayments and so on. Number one is
that we started making mortgage overpayments early right from the
beginning soon as we took our mortgage we started making overpayments and
overpayments have been absolutely game-changing now you might be saying to
yourself oh I don’t have extra money each month I’m just about getting by or
in your mind, you’ve conditioned yourself to accept the fixed amount the
mortgage company have said to you “this is your monthly amount,
please stick to this amount” you might have gotten used to that
but remember when you talk about mortgages everything is movable – from the
rate you’re paying to the amount you’re paying, to the term of the mortgage, all those
inputs can be changed whenever you want depending on how you structure your
mortgage and how you choose to deal with it, okay. So let me explain to you the
impact of overpayments. So guys let’s talk about overpayments and what impact
paying of a £100 a month or a £1,000 a month might have on
your mortgage, okay so here we’ve got an example of a mortgage of £250,000 and over 25 years, this is a typical mortgage, right. Rate of about 2.98%, which is typically what one can get on a fixed deal these days and over 25 years. If you took
that mortgage out today and started paying for it over those 25 years you
would pay interest £104,879 the total amount you pay back will be £354,879, right. now let’s see you start to pay a £100 extra every single month as an overpayment now what impact would that have on the 25 years we’ve got there? What impact would it have on the years and on
the interest you pay? Let’s have a look. Have a guess. Well here is what happens.
When you do it goes from 25 years this is you paying a £100 a
month, it goes down to 22 years your years drop by 3 years by you making a £100/month of overpayments and the interest amount you pay drops from £104,879 to £91,141. Saving you about £14,000 pounds. Right just think about that. That’s amazing right? Now let’s talk about a
£1,000 as a scenario. Remember we had 25 years and we had £104,879 in interest over the term. If you found a Side Hustle and you know
you started to generate a £1,000/month that you use specifically towards
your mortgage repayments what impact would that have on a 25 year mortgage as well as the interest amount of a £104,879 pounds? Let’s think about what savings that makes. Remember we
have 25 years. In that scenario, we would drop from 25 years to… get this, 11 years!!
By you making £1,000 of overpayments for a mortgage of £250k, right
in the same way remember we had a £104,879 as what
we would pay over the term, you would pay over the 11 years interest of £43,517, saving you £61,000!! but the amount of savings is not even the best bit. The best bit is that you get back 14 years of your life back mortgage-free!!
That for me was appealing. I mean if that doesn’t turn you on right, I don’t know what does. I know I’m being a bit geeky right but for me that got me really excited. The prospect that I’d
get all those years back and I’ll tell you why this matters – When my dad retired at
age of sixty-five I had breakfast with him we sat down and we were talking
about his retirement but he hadn’t paid off his mortgage at the day that
he had retired he still had about a year left yeah and although it was just a
year left it was good to see that was just a year left I still in some ways
felt sad that my dad had retired and you know that that mortgage on that house
hadn’t left, right. So for me, the goal was always – I’m gonna do something different
I’m gonna aim for us to try and did before 40 and we did it. For you, what’s the big motivation? What’s the big drive? right
would you like 14 years of your life back mortgage free? Who wouldn’t? Just
think about that. That would mean that all the money you made from your day job and
from anything else could go toward building up either your retirement pot
or your investments or doing life a lot better, okay. So there are huge motivations
for paying off your mortgage and these overpayment as I’ve demonstrated
with this example of £250,000 are game-changing! Number two is refinancing. So a refinance is what happens when you come to the end of the initial term of your mortgage, which for some people might be two years or might
five years on a fixed deal, for example, is what happens when you come to the end
of that period and you choose to go and look for a deal elsewhere.
Now what happens is soon as you finish that term most people stay on
that deal without even knowing. The banks basically write them a letter and most people then move on to what’s called the Standard Variable Rate, which is a much higher rate for example in the UK and you start to pay
that mortgage and you don’t even realise. What we did was we
were always looking for deals every single time. So we would say do a fixed
5-year deal if the rates were excellent we’d fix it for five years and then we
knew that we could then start to make overpayments, which we covered earlier in
this video but by ending that period and then remortgaging to a much lower rate
we further reduced the years on our mortgage. I’ll give you a really good one
so at some stage we were mortgaged from something like four point something
percent down to around two point nine eight percent and coupled that with
overpayments and guess what that did for our mortgage? We went from 25 years
on our mortgage to 16 years! In 1day we wiped out 9 years from our
mortgage. Why? Because we knew we could find that amazing deal at the end of the
term and that massive drop by refinancing coupled with this increase
in our overpayments we went by £500 every month overpayments
at that same period. By making those two moves we shaved 9 years off the
mortgage. Now think about what that does for your motivation. How amazing is that
to suddenly call the bank up, which I did all the time, right. I’d phone them up and say – “hey guys, how many years do I have left on the mortgage?” I wanted to
hear it from these guys and for them to say to you, you now only have 16 years left because you picked the phone up in one day and you understood your
numbers intimately. okay Number 3 is that we Swapped
Expenses. So you might have expenses such as TV packages that are making you
unproductive or things that you just don’t really use up so for example gym
memberships or whatever but you pay for them on an ongoing basis each month. Why
are you paying for that stuff? Let’s be real, right. Why not just
make phone call , cancel that stuff and because
you now understand the impact of overpaying by £100 a month,
you now know that OMG if I cancelled my TV package bill or if I
cancel my gym membership or whatever it is you’re paying for or cumulatively if
you cancelled, say two things you could free up a £100 a month right we now
know that that could shave off 3 years based on the example of £250,000 Mortgage. So swapping expenses is something we
did on this journey. So where we found things that were just not necessary
right for example I used to pay for the gym but like I noticed I was doing 15,000 steps
every day when I walked. What’s the point? Why am I paying 90 quid a month
for a gym membership? I cancelled that and I swapped that expense into mortgage
overpayment expense and further shaved off that mortgage. Number 4 is that we
used Cashback sites. So these are websites such as Quidco for example in
the UK which I’ll put a link to below and which essentially what you do there is you go
to this website and you’d make planned purchase that you want to make
and whenever you make those purchases through that website, you get cashback
for your purchases. So you could for example go and buy stuff through Google and not
get any cash back or you go to Quidco for example and when you make that
purchase you would get cash back on what you buy. But here’s the key when you get
that cashback don’t suddenly think – Ah, I’ve got a windfall. No! Send that money straight
to your mortgage account and overpay on that mortgage. The next one
is that we Renegotiated our expenses. So you and I have ongoing
monthly expenses that we have. It might be for electricity and gas, might be for
car insurance, home insurance, what have you. Whenever you
renegotiate your expenses what we used to do was we would use that extra money saved
straight towards overpayments on the mortgage. We’d find it, we’d make the deal, secure it and pay annually, right so you already paid for the expensive
prepaid it for the year and the savings that you made from a previous year put
it straight towards the mortgage overrepayments. That’s what we did and
honestly these little payments make such a huge impact, right. I mentioned earlier
that I had reference to a spreadsheet that you can use. You could look
in the link below, for example, and grab the Mortgage Amortisation spreadsheet and
do the math yourself and see. Those little changes have huge impact over
time they really really do. The next thing we did was we used our Bonuses
through work. Now you might get bonuses or you might not but we got
bonuses in fact every year we got bonus through work in some form or
another. In some cases those amounts were like you know 10 grand
15 grand or more. In some of the years they are a lot less but here’s the thing I
learned from a former colleague of mine who’s around 41 years old and had become
mortgage free and I noticed something about her she had this kind of fearless
attitude about her. I kind of asked her and she revealed to me that
what she did was whenever she got those kinds of windfalls such as bonuses , she
used them immediately to pay off her mortgage. That’s what we did so whenever
we would receive a windfall such as a bonus, most of the time people take this
and go on holiday, for example. And that’s fine as well
but we used ours most of the time towards overpaying on a mortgage and instantly
we’d wire that payment into our mortgage account and you know and see that payment go down online or login and have a look and see that mortgage. It does so much for
your motivation, so much! The next thing we did was that we Paid Fortnightly so
every two weeks we made a mortgage payment but you might be thinking why
why would you be doing that? Why does that matter?
So here’s why this matters. What we do usually is we’d pay on the 1st day of the
month then we’d pay again at the middle of the month.
So the overpayment, the extra bit we pay at the middle of the month.
So the typical mortgage payment that the bank expects goes out on the 1st of the month.
Why do we do that? There are 52 weeks in a year. If you paid monthly
you’d pay over 12 months in a year. If you paid every two weeks
you’d pay over 13 months in a year. How does that work? Well there are typically about
four weeks in a month and there 52 weeks in a year. So 52 divided by 4 gives
you 13 months. So that means that over the same period of time you are
essentially paying more money off from your mortgage than you would have had you
been doing it just by monthly payments each month. Such as over a 12-month
period. The next thing we did was that we Automated Our Payments. Most
overpayments people make can be adhoc but one thing we did was that we
committed to a certain level of overpayments. So initially it was £500
a month and that was it. But the psychology around automating
your payments – number 1 is that you just do it and so your emotions is taken
out of the picture so rather than you say “yeah you know I’ll try and make £500
overpayments each month”, right. What happens each month is that
something always comes up and something always demands your money. But if you
automate it if you say you have a normal mortgage payments and you make those by
standard Direct Debit, for example, then what you do with the overpayments is you
set up a Standing Order. This is a regular payment to the bank and that
comes out without you having to push the button. For us that was amazing
because even in months where we were struggling generally in terms of there
were excess things to pay for, we still made those payments and the
psychology is this – when people say – “how can I save 10% of my salary each
month?” What they should be asking instead is – “how can I live on 90%?”
rather than how can I save 10%. They are quite different questions, okay. So the latter
question which is how can I live on 90% is what you should be asking. The next thing we did was that we sold stuff around the house that we were not using.
Things such as stuff we’d collected over the years, stuff in our shed, for example.
We’d get rid of them on the Facebook marketplace. There are so many things
around your house that you can absolutely go around get a notepad
and pen do a slight audit of things around your house that could just
disappear. Do you have two lamps around your house that you don’t use? Well, why
do you need two? Get rid of one. Do you have things in your shed that you don’t
use? There’s always somebody out there looking for something secondhand and
even if you’ve got £50 or a £100 and these are ad hoc things,
these make a difference. Okay, this final one gets me so excited
right. I’m gonna tell you why so the final thing we did was we have always
done Side Hustles. Now this is what’s exciting about them.
Theoretically a side hustle is interesting, right? Yeah sounds cool, right?
But that’s not enough because the minute you can attach the money you get from a
side hustle right to some purpose such as becoming mortgage free which then
leapfrogs you closer to Financial Independence. The minute you can
make that connection, oh man, you have so much motivation to do it. So I’ve
illustrated to you earlier the impact of £100 overpayments and the
impact of £1,000 overpayments. If you can find a Side Hustle that makes
you a £1,000 a month and you committed that money towards overpaying on your mortgage I’ve shown you earlier that in the £250,000
example it would liberate that person It would save 14 years or rather,
give them back 14 years of their lives without a mortgage!! So the way to
think about side hustles is to connect your side hustle to a real purpose to
something that will mean a lot to your life that will buy you back your time
and for us that thing was getting closer to Financial Independence.
So whenever I talk about overpayments we didn’t just get those overpayments from
our salaries, we got them from using our creative abilities and
doing things that meant that we were making money on the side. We’ve always
done that. I’ve done videos which I refer to the link below
are on Passive Income for the Best Passive Income Ideas. You should definitely check
those out I will also put a link below to one of our really popular posts on our
site called “85 Ways to Make Extra Money”. If you’re really keen on Side
Hustles do check them out and grab one pick one thing, pick two things and get
started today. Should you pay off your mortgage? Now here is the real thing
about this. I’m gonna be super practical with you and be very honest. The truth
about whether you should pay off your mortgage or not is really down to you. Only you
will know. Now I might come to you and say to you “hey I paid off my mortgage in 7
years you should do the same thing” but you should really do the analysis for
yourself okay because your life circumstances are completely different
to mine, for example, you might be further on in age I’m in my mid-30s. You might
for example have health problems or you know all kinds of things might
be happening. You might have a big amount of savings already put aside in which
case you know overpaying your mortgage and paying off your mortgage
might be the best thing to do. We did both we invested through stock market and
also targeted our mortgage at the same time, okay. So it’s not mutually exclusive
you can’t just say I just want to invest in the stock market or I just want
to invest by paying off my mortgage. You can actually mix it however
you want but the key thing to remember is that no expert should tell you that
paying off your mortgage is the only thing to do okay or investing in the
stock market it’s the only thing to do because don’t forget the investments
through stock market are not guaranteed okay
your money could just disappear into thin air. That’s the truth but with a
mortgage though when you pay that mortgage off it’s real don’t forget that
paying off your mortgage is like getting a return because you have taken
the return the savings that come from not paying away all your money and
interest over time. So you are getting a guaranteed return from paying off your
mortgage, which might be appealing. But here’s the really interesting psychology
about paying off your mortgage – mortgages keep us trapped in that kind of
ever commuting to work. If you didn’t have your mortgage I bet you you would
take a lot more risk and that’s what I found you know you’re a lot more likely
to enjoy what you’re doing to explore things that are interesting to you. Those are some of the motivations. For you it might be something completely different
but that’s guaranteed that mortgage is the one thing whenever anyone says to
you you should be investing your money through the stock market only yes…
logically it makes sense. You can make a bigger return and use that return
potentially to pay off your mortgage, yes theoretically that’s right. But don’t
forget the psychology. That psychology is so important because the mortgage
really really frees you up like seriously frees you up! Because if you
lose your job what happens? It’s not the end of the world because you don’t have
that big big thing to worry about, okay and don’t forget it’s a huge lever
for Financial Independence because if your mortgage, which typically makes up a
third to a half of most people’s disposable income if you didn’t have
that mortgage there anymore think about what is your monthly
expenses they become very little really and so getting closer to Early
Retirement or Financial Independence becomes a lot easier :). So guys I really
hope you’ve enjoyed that video. You know becoming Mortgage Free is life-changing.
I cannot explain to you how massively amazing it is to become mortgage-free
okay now you don’t have to do it in 7 years. You can do it in 10 years, you can do it in 15 years, whatever but the goal is to make sure you’re doing it
for a reason that’s unique to you the reason that’s COMPELLING enough for your
situation okay. I’d love to hear from you if you’re currently on the journey to
becoming mortgage free you know I’d love to know what are you doing?
how are you making that happen? How are you making that possible? Please comment
below. If you’ve also enjoyed watching this video I’d love to just hear from
you. Which of those ideas resonated with you? Which one are you looking to try out
? Which one would you like to try? Please comment below and I’d love to kind of
come into the comments and respond and just kind of have a conversation with you.
Thank you so much for watching this channel what we do here is to give you
the hacks, the insights for you to become Financially independent and
enjoy a dream life of Money Joy. Please make sure you come back, do please LIKE, do please SHARE and do please SUBSCRIBE. I cannot wait to see you on the next
video. Thanks a lot guys take care 🙂