FROM THE PROPERTY REPORT
DIANA CLEMENT meets the two couples who managed to pay off their mortgages in record time.
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Kiwis can and do choose to pay their mortgages off quickly. For some families, the strategy includes starting with a more modest house in a lower-priced part of town, and avoiding the temptation to keep trading up, renovating or extending the home.
Empty nesters willing to downsize to something more modest as their children leave, rather than upgrade again, will also work off their mortgage faster.
In particular, significant alterations on the home can mean burning through money on tradespeople as renovations often end up costing way more than expected. When a growing family means a bigger house, families need to weigh up that can be done without overextending financially.
Josh and Liz Byers’ number one strategy for paying their mortgage off was to buy modestly in the first place. Many of their friends and colleagues bought into expensive suburbs and upgraded whenever they could.
The Byers chose a home in an upcoming Auckland suburb before prices started to climb.
“If we had chosen another suburb I wouldn’t be having this conversation about paying off the mortgage,” Josh says.
When they bought in 2011, the Byers already knew they would pay the mortgage off early. They gave themselves allowances for non-essential spending in order to have funds available to overpay the mortgage.
Putting a number on the allowance figure wasn’t easy and there was some trial and error in the journey. Josh is a saver, and Liz provides the balancing between saving and enjoying life.
“That’s why the partnership works,” he says.
“We couldn’t just go out and buy new things when we wanted them. Our choices changed somewhat.” – Josh and Liz Byers
Josh and Liz had been used to spending what they wanted in their 20s, so the allowance approach was a big change to their lifestyle, but one they embraced.
“We couldn’t just go out and buy new things when we wanted them,” he says. “Our choices changed somewhat.
“There was a lot of decision making around things like holidays and clothing.”
Even something as simple as haircuts had to be factored in. Josh, for example, pays $25 for a haircut, whereas for Liz, a trip to the hairdressers can cost nearer $100.
When each wanted something, such as a new suit in Josh’s case, they worked out how many months’ allowances it would take to pay for the item. This made them cherish their purchases more.
Over and above the allowance, a “fun fund” for date night and basic living costs, the remainder of their income was diverted to the mortgage. Any windfalls or bonuses were paid into the mortgage as well.
The 20-year mortgage was paid off in just seven.
Having the mortgage paid off gives the couple financial and life freedom, says Josh. “We are not dictated to by our house. We can invest and save for retirement or do certain renovations, and have more flexibility around family plans like education and holidays,” he says.
Unlike Josh and Liz, Carli and David Agnew didn’t have a specific time frame for paying off their home. They knew they wanted to do it as fast as possible and, in the end, their 25-year mortgage was paid off in less than 15.
The couple focused on reducing the outstanding balance faster than required.
“Our budget was living costs, a bit of spending money and the rest we threw on our mortgage,” says Carli. “We never put cars on our mortgage, we never had holidays on our mortgage, and we never did interest only.”
Every time Carli and Russell received a bonus they would make an additional payment on the mortgage, reducing the outstanding principal and the amount of interest they would pay in the long run.
“Most banks give you a certain amount you can pay down every year without incurring penalties,” she says.
Carli says paying the mortgage off felt “really really liberating”. “Paying the mortgage off is the feeling of being unlocked from a noose around your neck,” she says.