My mortgage and I aren’t friends. The relationship was difficult from the outset, starting with Experian’s abject incompetence at keeping records (long story). Once that bullshit got resolved, there was a string of minor but annoying fuckups by my mortgage lender, and then, adding insult to injury, the 4.79% first-time-buyer-special interest rate at a time when everyone I knew was paying 1% or less. #bendoverhereitcomesagain
Then I lost my job and realised the true meaning of mortgage slavery: I had no option but to take whatever half decent offer of employment came my way, not because I wanted to do what the job spec said, but because I had a mortgage to pay. The Man had me by the short and curlies. This bred resentment. In the words of Henry II, I was ready to be rid of that turbulent loan. Steps had to be taken.
This grew; I gave commands.Robert Browning
It’s been almost 10 years since I signed on the dotted line trading my freedom for a set of keys, and I now find myself in a position where I have more than enough money in my savings an investment accounts to kill my mortgage once and for all. Yet I hesitate to pull the metaphorical trigger. We’ll get back to this later, but first let’s review the journey so far.
If you’ve ever run a marathon you’ll find the experience rather similar.
1. The cheery start
Oh the excitement of crossing the starting line! Willpower reserves were full, I had read a gazillion success stories on the internet, I had fantasised of what it was going to feel like to be mortgage free and it felt great. The finish line was so far away that at that point it was an abstraction. And, as every abstraction that’s ever existed, it lent itself to be applied, appropriated and modified to represent a solution to everything and anything I would’ve liked to be different about my life — freedom, total control over my time, success, a partner in life, winning the Fastnet, absence of boredom and broken fingernails, a boiler that doesn’t require an annual service, a pint that never goes flat — as soon as the mortgage is repaid, everything else will fall into place.
I rang my bank, set up regular overpayments and then I chucked every annual bonus I received into my mortgage account, smugly watching the interest charge decrease each month. That lasted for three years, give or take.
2. One third done. Two. Thirds. Left. To go
I repaid a third of the mortgage in under four years and realised it was going to be harder than I had expected. What to do, what to do.
What was I thinking?!HoSimpson
Enter: excuses and rationalisations. This is the cheapest loan I’ll ever have, everybody has a mortgage and nobody obsesses over it, what’s the hurry with this repayment scheme? Perhaps I should invest the money instead? If I generate a tax free return that’s higher than the interest on my mortgage, I’m quids in. Inflation will repay my mortgage if I only wait long enough.
It was at around this time that I discovered the Monevator, spent a few
weeks months 😉 reading old posts and came to a conclusion that the investing angle might not be completely bonkers. But I was not able to embrace it with the enthusiasm it deserved.
My problem is that I have a poor person’s money mindset. I was born poor. My family only came into (rather moderate amounts of) money when I was a teenager — it was too late for me by then. I had already experienced being the poor kid at school, which came with such perks as having the crappiest sports kit at PE and missing foreign school trips because my family couldn’t afford to pay for them. My core beliefs were set. Rich people were “them” not “us”, a sparrow in hand was preferable to a dozen in the bush, and debt was a thing to be feared rather than a tool to be used.
There’s a guy in the FI blogosphere, FIRE v London, who used a margin loan to buy his house; his target asset allocation features negative cash. I know exactly why that is sensible, and I even have the necessary tools at my disposal to pull off something along those lines myself. What I lack is the balls. You see, financial risk aversion runs along the class divide much the same as the dental health. Because: getting back on your feed after a hard knock is so much harder when you’re poor.
So when it came to mortgage repayment vs investment, the best I could do was compromise, and that was only because I hated the tax more than I hated debt.
3. Tax planning
There is one valid excuse to invest in lieu of repaying the mortgage. If your job is secure and especially if you are in the higher tax bracket, it makes sense to use up your annual pension allowance. Then, having reached a ripe young age of 58, you can take your 25% tax free lump sum and hand it over to your bank to clear any outstanding mortgage balance. So long and thanks for all the fish, Pinstripes, it’s been a pleasure I don’t care to repeat!
On paper, yes, that makes sense. In the real world though a great many things can happen before your 58th birthday. You can lose your job or become ill, or both. The property market can crash and you can end up in negative equity. Tapping into your pension before the minimum pension age attracts punitive tax charges, whereas a mortgage free house can be sold or mortgaged to release home equity. Repaying a cheap loan now gives you a call option on a cheap loan later; you can’t do that with a pension.
Luckily my tax bracket was such that I could not justify anything other than maxing out my pension allowance. As for the ISA, I just bit the bullet and did it, kept some of it in cash at first, called it my emergency fund. It was a good call.
4. The final stretch
Now I only check my mortgage balance when I update the scorekeeping spreadsheet, which is once or twice a quarter. Overpayments are coming out on direct debit, I hardly even notice it anymore. And the balance has decreased to less than a third of the original amount. And, as I might have already mentioned, I have more than enough funds now to kill it once and for all, if I wanted to.
So that’s when you tether the fucker to a chariot and pull it around Troy, right?;
Maybe. Maybe not. I find I’ve grown accustomed to my mortgage, the glimpse of its balance on the mobile banking app no longer frightens me, nor does it keep me up at night.
I now wonder perhaps the problem was not the mortgage itself but rather the size of it compared to my then nascent net worth? I think I’ll keep it for a few years yet, till I’m ready to retire, and then pull the plug on both The Mortgage and The Man at the same time. The two assholes have a lot in common after all.
1. Just kidding. I like Hector, it was shabby of Achilles to do that to him. I’m certain, had they had Instagram back then, Achilles would’ve apologised afterwards for such unacceptable and inexcusable behaviour, acknowledging that violence in all of its forms was poisonous and destructive. I trust we can all see clearly now that the Trojan War was too much for him to bear and he reacted emotionally. He was out of line, he was wrong, and his actions were not indicative of the man he wanted to be 😀 .