Paying Off the Mortgage
At 34 years old, I paid off my residential home mortgage a few months ago. I am also currently debt free, until I acquire my next home.
Note: this is not a how-to step by step guide. I am able to pull this off due to contextual situations most likely not applicable to someone else. This is just how I did it, it is not the only way – it is also not the best way.
For context, I left my job on the verge of my marriage to pursue my own projects. Knowing I would eventually pursue this path, I intentionally selected a small single storey terrace house for my spouse and I. I am also lucky that my mum decided to fund half of the property, so I am only owning and paying mortgage for half of the house.
All in all, I paid off the mortgage 4 years after I owned and moved into the house. The first 1.5 years I didn’t have a stable income (roughy RM1500 to RM2400 per month + some ad hoc freelance income) and my wife wasn’t working as well.
I become more aware on the need to pay off my mortgage only after 2 years, when I realized all those monthly payments I made barely scratch the surface of the loan capital. My income has also increased to around RM6000 by then, with better stability.
The first major payment come from me selling off my entire stock portfolio. It took me a few weeks to make the decision, eventually I decided to do it as part of my stock portfolio restructuring process.
In hindsight, while most of my counters are losing money, I did have 1 or 2 really good prospects and I should have kept those.
Anyway, once I have started making that first payment, I made it a habit to track any extra cash I have (mostly from my freelance works) and made small sum of payment (from RM8k – RM20k) every 3-4 months.
One thing I did realized is how partial loan settlement is seemingly designed to be an inconvenient process. Apparently in the clause of my loan doc, it specified that I need to inform them 1-month advance of my partial settlement before I can actually make the payment. Example: In order to make a partial loan settlement in March 2022, I need to physically visit the bank in Feb 2022 to alert them I will be coming 1 month later (March 2022) to make the partial settlement.
Imagine someone who has a more rigid working schedule, it really could be a hassle and discourage them from taking effort to settle the loan.
In my case, going debt free is not just about paying off my residential home’s mortgage; as I owned a second property in Klang Valley that was meant to be an investment.
It didn’t end up being a good investment choice. While the monthly rental cover most of my monthly mortgage, the occasional loss of tenant and maintenance work bring me mental and financial stress, especially when I didn’t have stable income.
I made the decision to sell it off with a loss – while I was paying down my residential home mortgage.
Essentially, this decision helps me to kill 2 birds with 1 stone. As getting rid of the property allows me additional margin and able to direct additional cash to paying off my residential home.
Is it worth it?
I am no financial expert but it is true that my decisions above didn’t make much financial sense:
- I made a loss on my stock investment portfolio
- I made a loss again on my investment property
All of these amount to a significant number of losses. Financially speaking, these might not be the best financial decisions I should make (?); but without visibility into the future, I guess we really can’t say.
At least for me, these are important decisions as they release me from the mental stress. I gained a lot more mental space to pay attention to other things in life (like building up my Saas) as well as confidence boost that paying down mortgage is possible.
The Next Mortgage
I am in the process of securing another residential home to move into as my family has now outgrown the single storey terrace.
Just for fun, I have also started formulating how I can also pay off my mortgage in 7 years timeframe (same as my loan period for my new car). Sharing the ideas here in case anyone find this useful / interesting to look at.
I am living in Ipoh and after months of searching, I decided a RM350k+- double storey terrace house is more suitable for my budget. To add some margin on what I eventually would get, let’s try to work with a loan amount of RM350k.
The main idea I am tinkling with is basically what if I start paying partial settlement annually with a small sum, but double that amount every year. What it would look like in practice with a 7-years timeframe:
- Year 1: RM1k
- Year 2: RM2k / Accumulated: RM3k
- Year 3: RM4k / Accumulated: RM7k
- Year 4: RM8k / Accumulated: RM15k
- Year 5: RM16k / Accumulated: RM31k
- Year 6: RM 32k / Accumulated: RM63k
- Year 7: RM64k / Accumulated: RM127k
This is still way far from my loan amount of RM350k. But what if I starts with RM3k?
- Year 1: RM3k
- Year 2: RM6k / Accumulated: RM9k
- Year 3: RM12k / Accumulated: RM21k
- Year 4: RM24k / Accumulated: RM45k
- Year 5: RM48k / Accumulated: RM93k
- Year 6: RM 96k / Accumulated: RM189k
- Year 7: RM192k / Accumulated: RM381k
So this looks pretty good. But, from year 4 onward, it would be almost unthinkable that I can fork out RM24k, RM48k, RM96k hard cold cash annually. So we are kinda back to blank canvas.
Now, what if I started with a higher number and breakdown the annual amount to smaller pieces?
- Year 1: RM5k
- Year 2: RM10k / Accumulated: RM15k
- Year 3: RM20k / Accumulated: RM35k
- Year 4: RM40k / Accumulated: RM75k
- Year 5: RM80k / Accumulated: RM155k
- Year 6: RM160k / Accumulated: RM315k
- Year 7: RM320k / Accumulated: RM635k
With a starting digit of RM5k, we can hit pretty substantial amount in year 6 already. Let’s do some adjustment to this.
- Year 1:
- Year 2:
RM10kRM15k / Accumulated: RM30k
- Year 3: RM20k / Accumulated: RM50k
- Year 4: RM40k / Accumulated: RM90k
- Year 5: RM80k / Accumulated: RM170k
- Year 6:
RM160kRM80k / Accumulated: RM250k
- Year 7:
RM320kRM80k / Accumulated: RM330k
This looks pretty good but the numbers still don’t look very convincing that it is achievable.
Now, I need to confess that most of my incomes are in SGD or USD. So a lot of times, I think money in SGD or USD terms, and not RM. So let’s convert this to SGD and see what we have here.
Loan amount RM350k = SGD116.7k
- Year 1: SGD5k
- Year 2: SGD5k / Accumulated: SGD10k
- Year 3: SGD6.7k / Accumulated: SGD16.7k
- Year 4: SGD13.4k / Accumulated: SGD30.1k
- Year 5: SGD26.7k / Accumulated: SGD56.8k
- Year 6: SGD26.7k / Accumulated: SGD83.5k
- Year 7: SGD26.7k / Accumulated: SGD110.2k
We are still SGD6.5k short. So let’s adjust the first 3 years again.
- Year 1: SGD7.8k
- Year 2: SGD7.8k / Accumulated: SGD15.6k
- Year 3: SGD7.8k / Accumulated: SGD23.4k
- Year 4: SGD13.4k / Accumulated: SGD36.8k
- Year 5: SGD26.7k / Accumulated: SGD63.5k
- Year 6: SGD26.7k / Accumulated: SGD90.2k
- Year 7: SGD26.7k / Accumulated: SGD116.9k
Ok, so now we have a plan that looks more achievable and convincing. I mean at least my brain doesn’t get a shock from some humongous numbers.
Now let’s break those numbers down to monthly and quarterly amount:
|Year||Annual Amount (SGD)||Monthly Amount (SGD)||Quarterly Amount (SGD)|
Now, with some optimism, luck and hard work in my business, this is looking pretty achievable.
I will just leave this here. It will be interesting to revisit this post few years down the road and see how I am doing, or how I have realized how naive I am, haha.