Imagine being mortgage free...

For many of us a mortgage remains a huge psychological barrier standing firmly in the way of financial freedom.

Being in debt forever has become a real possibility for homeowners particularly with falling house prices, big mortgages, and interest only loans to mention but a few.  It has resulted in huge loans that we grudgingly spend most of our adult lives repaying.

The term mortgage has it’s origins in France and literally translates into English as “death contract” and for many people that is exactly what it is – a legally binding contract that will not end until you are close to death.

Of course the Irish see our homes as our castles and therefore the offer of a mortgage on a house is a cause for celebration. We view our home as an asset where of course it is not, it is the biggest, most expensive loan you will ever take on and the quicker it is repaid in full the better off financially you will be and the better your quality of life will become.

Unless we win the lottery repaying a mortgage of say €300,000 in less than 20 years will be beyond our means as well as the willpower of most borrowers. You could work 8 days a week and live off baked beans until your loan is cleared but for the majority of us this is unrealistic.

But what if you were mortgage free? What if you didn’t have that monthly burden which is actually lining your banks pockets?

A mortgage is set up to drain your bank account and people don’t realise that they are in fact working for their bank. And they know that some people could repay their mortgage faster but they are not going to tell you how or help you in anyway because it cuts their ability to take money away from you for years on end.

So, a bank wants you to keep paying them for decades but what if you repaid your mortgage in a fraction of the time?

A study was completed a couple of years ago that followed 100 people from the start of their working career for 40 years, until they reached retirement age, and this is what they found:

• 1 person will be wealthy
  
  
• 4 will be financially secure
  
  
• 5 will continue working, not because they want to but because they have to
  
  
• 36 will be dead
  
  
• 54 will be dead broke, dependant on social welfare payments, relatives, friends or even charity for a minimum standard of living
  
  That means that 5% will be financially successful and 95% wont.
  
  Wouldn’t you rather be part of the 5%? Well if you don’t have a mortgage then you almost certainly will be. It’s your call.
  
  OK, so why would you want to be mortgage free?
  
  Freedom
  
  Can you imagine the freedom of not having that mortgage repayment hanging over your head each month? Now all you would have to earn is enough to pay for basic necessities.
  
  Imagine the possibilities this could open for you? You could afford to quit your job and start a business, travel, help your children financially – the world is your oyster!
  
  Less Stress
  
  Not having a mortgage repayment would mean significantly less stress in your life, you wouldn’t have to worry as much about losing your job for example.
  
  Liquidity
  
  What I mean here is that if for example your mortgage payment is €1,500 per month and you pay it off then you would have an extra €1,500 in your bank account. You could invest this and when you reach old age become one of those people in the 5% bracket that I mentioned earlier!
  
  Safety
  
  Once your mortgage is finished then you truly own your home. This without pointing out the obvious means you always have a place to go to. You can’t live in a stock market certificate as many people have found out in recent years.
  
  Owning your own home is a safe investment for the simple reason that you always have a shelter.
  
  Let me now give you a quick example of how I showed one couple I was working with, how to take 10 years off their mortgage and it was based on a three pronged attack:
  
  Number 1 – “The “Latte Factor”
  
  First off, did you know that by cutting back on some luxury items and using the money saved against your mortgage would save the following against a €300,000 mortgage over a 30 year term?
  
  

1. Sports TV Subscription                            
   
   1 yr 5 months off your mortgage and €12,569 in interest
   
   

1. 10 Cigarettes per day                                 3 yr 9 months off your mortgage and €31,660 in interest
   
   

1. 1 Cappuccino per day                                  2 yrs off your mortgage and €16,606 in interest savings
   
   

1. 1 Chocolate bar                                                                       8 months off your mortgage and €6,487 in interest savings
   
   Number 2 – The bi-weekly repayment plan
   
   The second way to become debt free is an industry secret but yet so simple its not even funny.
   
   It is simply using a biweekly payment plan to pay down your mortgage and doing it automatically. Instead of making a monthly repayment the way you are currently doing, you split it down the middle and pay half every 2 weeks.
   
   If you had a mortgage of €300,000 at say 4% over a 30 year period then this loan will cost you €215,608 in interest charges over the life of the loan. On a bi weekly basis, the same mortgage will cost you a total of just €181,950 in interest.
   
   In other words, switching to this simple method of repayment you will save more than €33,657 in interest payments and take 4 years off the term of your mortgage.
   
   Number 3 – Monthly Overpayment
   
   The third method of repaying your mortgage in a much faster time period is achieved by making an overpayment each month on top of your current repayment. If, for example, you overpaid an extra €120 each month on your €300k, 30 year mortgage, then by doing this each month you would reduce the term outstanding by:
   
   

• 4 years 1 months (saving over €33,549 in interest payments)
  
  So, could you find an extra €4 each day that could be applied to your mortgage?
  
  Let me help you find this €4 and if I put it another way to you, you might find it easier.
  
  If you are earning €30,000 each year, it means that your hourly rate is about €15 before taxes, based on a 40 hour working week. This means that every minute you work, you earn €0.25 cent. So, all you have to work to achieve this €4 every day, is dedicating or pledging that the amount you earn for just 16 minutes of your work every day is going towards your mortgage overpayment.
  
  What I am showing you here is that by a combination of a regular overpayment, how frequently you repay your mortgage, and cutting back, not out on small everyday items, that 30 year €300,000 mortgage is paid off 10 years less and saving you c. €83,812 in interest repayments in the process.
  
  So, maybe that mortgage you have doesn’t have to be for as long as it said on that loan offer your bank initially gave you, it really is up to you.