Pay off your debt
Disclaimer: we are not financial advisors and you should seek financial advice to suit your specific needs.
How We Paid Off Our Mortgage : A Journey to Financial Freedom
When we bought our first home, paying off a mortgage seemed overwhelming, a prospect stretching decades. For the first decade of our marriage we were trapped by the desire to own a house to both make us feel accomplished, but also, lets face it, to impress others! While Mrs Forget the Grind has always been frugal, it took many years for Mr Forget the Grind to catch up. While we are now debt free, we could have done this a decade earlier if we refrained from upgrading our home twice and building that McMansion…
While the upgrades did take their toll on the size of our debt, we did employ a few strategies to reduce the time it took to pay off our mortgage:
Leveraging an Offset Account
One of the most effective tools we used was an offset account. For those unfamiliar, an offset account is a transaction account linked to your mortgage. The balance in this account is offset against your loan balance, reducing the amount of interest you pay. For example, if you have a mortgage of $300,000 and an offset account with $50,000, you only pay interest on $250,000.
We directed all our income automatically into the offset account, keeping it as high as possible for as long as possible. This not only reduced our interest but also helped us maintain a clear picture of our finances, making it easier to manage our spending.
Budgeting
Budgeting played a critical role in our journey by managing household expenses using our trusty budget spreadsheet (feel free to try our template by clicking here). We used this simple budget spreadsheet to track every expense, from groceries to utilities to entertainment. By categorizing our spending and setting limits, we identified areas where we could cut back and save more.
Every month, we reviewed our budget to ensure we were on track. Any surplus remained in our offset account or transferred onto the mortgage, reducing our principal and the interest charged. This disciplined approach to budgeting not only helped us save money but also instilled a sense of financial responsibility (noting there were a few splurges along the way… yes we are human!)
Fortnightly Mortgage Payments
Our Mortgage broker gave us some fantastic advice when we took our first loan together as a couple. Instead of making monthly mortgage payments, we instigated a fortnightly schedule. By paying half of our monthly payment every two weeks, we effectively made 26 half-payments a year, equating to 13 full payments instead of 12. This extra payment each year significantly reduced our loan term and the total interest paid.
Fortnightly payments also aligned with our pay cycles, making it easier to manage cash flow and avoid the temptation to spend money that could be put towards the mortgage and later invested.
Regularly Negotiating Interest Rates
Keeping an eye on the bank and holding them to account also helped with minimising interest paid over the life of our mortgage. We made it a point to regularly speak with our bank about our interest rate, keeping a close eye on market rates and competitor offers and using this information to negotiate better terms with our bank. This proactive approach often led to reductions in our interest rate, further decreasing our overall mortgage cost.
By showing our bank that we were informed and willing to switch to competitors for better rates, we managed to secure favourable terms that helped accelerate our mortgage repayment.
Downsizing for Financial Freedom
One of the most significant steps we took was downsizing. We decided to sell our larger home, which admittedly had fixtures, fittings and finishes to a higher specification, and purchase a more affordable property in a great location. This decision was not easy, as it meant moving to another city, but it was a game-changer. With considerable research, we chose to move to Adelaide Australia, which has an amazing lifestyle and was also voted the third best city to live in the world in 2021. The proceeds from the sale of our previous home allowed us to pay off the mortgage on our new home entirely, leaving us mortgage-free with a sizable saving.
Downsizing brought numerous benefits beyond financial savings. It simplified our lifestyle, reduced maintenance costs (moving from a rural property to an urban environment), and allowed us to focus on what truly mattered—spending time with family and pursuing our passions without the burden of a large mortgage hanging over our heads.
The Road to Financial Freedom
Our journey to paying off our mortgage was not without its challenges, but the strategies we employed made a significant difference. Leveraging an offset account, budgeting, making fortnightly payments, regularly negotiating interest rates, and ultimately downsizing were key to our success.
This journey has taught us the importance of financial planning and discipline. It has given us the freedom to live life on our terms, free from the constraints of a mortgage. If you are looking to pay off your mortgage quickly, consider adopting some of these strategies. With determination and smart financial decisions, financial freedom can be within your reach.