r/fiaustralia - Mortgage free at 33 – The journey to zero

A few days ago, I made the final transfer to my mortgage offset account which increased the balance to equal the outstanding amount of the mortgage. As the offset balance now equals the mortgage amount, the interest payable ongoing will now be zero, and so I am delighted to be able to consider myself effectively mortgage free.

This write-up summarises my mortgage journey and documents some of the rationale behind my approach.

Key Dates and Events

Date Event
January 2009 Entered workforce – began saving for a deposit
March 2013 Purchased PPOR1
May 2017 Sold PPOR1 / Purchased PPOR2
January 2021 Mortgage offset = Mortgage (effectively mortgage free)

The Numbers

The graph below summarises the history of the deposit, offset, and mortgage accounts that I have held over the course of time.

r/fiaustralia - Mortgage free at 33 – The journey to zero

Some notes:

  • The Deposit account morphed into the Offset account upon the purchase of PPOR1.

  • The outstanding mortgage balance is plotted against the secondary y-axis on the right which is an inverse of the primary y-axis on the left. Therefore when the Offset balance matches the outstanding mortgage balance, the lines intersect.

  • I have also plotted the cumulative interest paid over the life of the mortgage in purple.

  • When purchasing PPOR2 (see Journey section for an explanation), I completely discharged the first mortgage using the proceeds of the sale of PPOR1, while simultaneously taking on a second mortgage. For the purposes of this post to make the story easier to understand, I have assumed that I have held a single mortgage over the time period rather than trying to attribute separate amounts of interest, separate offset accounts, and separate balances against each loan.

The key numbers of the property and mortgage are as follows:

r/fiaustralia - Mortgage free at 33 – The journey to zero

The Person

  • I am 33, single, and don’t have any dependents.

  • I live in Perth, Western Australia.

  • I work in a metro tertiary public hospital.

The Journey

This journey began in 2009 when I entered the workforce as a new graduate and was in a position to begin saving for a deposit. I was living at home with my parents at this time.

My original decision to purchase was never in the context of achieving FIRE; I wasn’t aware of the concept until late-2018. My interest in owning my own home was principally to achieve a means of secure shelter without having to rent or rely on my parents. At the time, I strongly disliked the concept of renting for several reasons:

  • Renting felt to me like I was paying someone else’s mortgage and that didn’t seem reasonable;

  • I did not like the idea of being exposed to the whims of a landlord, having to undergo regular intrusive inspections, and being limited in what I could do with the property;

  • I did not want to find myself in a situation where I had to move out at short notice simply because the landlord wanted to terminate the rental arrangement.

I value stability, privacy, and freedom, and so these reasons steered me towards buying my own property.

As I was growing up, I had the experience of watching the life of a distant relative of my family implode after many years of living well beyond their means, and witnessed the impact of the resulting bankruptcy. I resolved that I would always live within my means, and that meant the first property would not be a ‘forever home’ in any capacity. It would need to be solidly constructed, be located in a quiet area and have reasonable access, but I decided to forgo all the non-essential ‘extras’ like a second floor, high-spec kitchen/cabinetry/appliances, smart cabling, an alfresco/entertainment/barbeque area, and designer floor/wall/window treatments.

My original aims and numbers were:

  • A property in the Perth metropolitan area;

  • Max $630k purchase price ($600k house + $30k expenses);

  • A minimum of 20% deposit ($126k) to eliminate the need to pay LMI; and

  • Maintain eligibility for the First Home Owner Grant.

With this in mind, I gave myself three major ‘work-streams’:

  • Set and keep a detailed budget using a zero-sum budgeting process;

  • Automate my finances to ensure I was always saving a portion of my salary every time I was paid without having to actually remember to do so; and

  • Increase my income wherever possible.

On budgeting, the zero-sum budgeting process worked well for me as I enjoy detail, working with numbers, and the recording and categorisation of transactions. I also developed a habit of framing potential purchases within context of the number of hours I would have to spend at work to pay off the purchase and found this immensely helpful in exercising restraint in discretionary spending. I set frugal limits on all of the major outgoing categories, but always made sure to have a defined ‘fun’ category as well so that I would never feel guilty on indulging my own interests. I also decided to travel domestically in lieu of overseas travel for the first few years of my career to further increase my rate of savings.

On finance automation, this was easily achieved through scheduled transfers offered through my bank’s internet banking service. It was easy to setup a repeating scheduled transfer which automatically transferred my desired saving amount every payday into a separate account, and also automate all my other bills/payments. This meant that I never ‘saw’ the money and never had to remember to do anything. I settled on the financial model below:

r/fiaustralia - Mortgage free at 33 – The journey to zero

On increasing my income, a statement by a commentator in a newspaper article I read in high school back in the early 2000s has always stuck with me: “The foundation for success in Australia is hard work and having a go”. I acknowledge there will be variety of views about the explicit and implicit ideas embodied within the statement, but it made sense to me and stuck in my mind, and ultimately led me down two paths:

  • I worked extensive overtime hours during the first few years of my career which meant I could basically cover all my limited outgoings with overtime pay and save virtually my entire regular salary. I saw overtime through two viewpoints; an opportunity to earn more money, and an opportunity to experience different types of responsibilities that comes in working within an after-hours team in a hospital to improve my skillset and develop a competitive edge over my colleagues;

  • I purposefully stuck my neck out and volunteered for new roles, new assignments and special projects, and applied for senior positions whenever the opportunity arose to gain interview experience and increase the likelihood of promotion. I have been moderately successful in this respect and managed to steadily increase my seniority and income over several years. If you are interested, you can see my income progression in an earlier summary post I made this year.

By late-2011, I had achieved my deposit goal of $126k, however I now faced the problem of not actually being able to find any properties that met my no-frills criteria in a suburb that I wanted. At the time, Perth was in the midst of a property boom driven by the resources boom. Seemingly everyone was seeking an upmarket house to live in and was prepared to pay for it, and the market was reacting accordingly. I really didn’t want to over-extend myself financially, nor did I want to significantly compromise on my expectations, and so I decided to wait, continue looking and continue saving.

In early 2013, I finally found a property which aligned with my needs and which I felt comfortable with, and executed the purchase. The additional time spent saving, along with purchasing slightly less than my maximum price meant that my deposit accounted for 31% of the total price. In my opinion, it was a good result. After execution, all my remaining money was immediately transferred into a transactional offset account and my financial model amended to the below:

r/fiaustralia - Mortgage free at 33 – The journey to zero

Over the next few years between 2013 and 2017, things were for the most part financially uneventful. Seeing the size of the first interest charge applied to the mortgage literally made my eyes water, but I was not deterred and I set myself a goal of paying off the mortgage in 10 years. I continued to stick to my budget, continued to save regularly, and continued to work hard at work which led to ongoing promotions and pay increases which in turn helped increase the rate of savings and the amount held in the offset account. Helpfully, I also received a $75k windfall in the latter half of 2016 (divided into two tranches which explains the two distinct ‘jumps’ in the first graph for that year) which I decided to fully deposit into the offset account as well.

In late 2016 and early 2017, I observed a series of incidents in my professional life which gave me cause to re-evaluate my areas of personal focus and my work-life balance. This re-evaluation eventually led to a decision to move to a new location in mid-2017 to achieve a better lifestyle. While PPOR1 had fairly good access to road transport links, and moderate access to public transport, I still needed to drive down two busy freeways to get to work, drive to access a supermarket and drive to get to a park. On reflection, I found it quite stressful just getting to and from work every day, and I wasn’t around where my friends lived. Seeking to improve my quality of life, I sold PPOR1, closed the first mortgage and purchased PPOR2 with the equity of the PPOR1 sale acting as a deposit and taking on a new mortgage.

PPOR2 is within walking distance of the CBD, a large supermarket, a big park/lake, is a 3-5 minute walk to two train lines and is near where my friends live. I could also ride the train to work without having to change trains and resulted in a dramatic reduction in car usage and a proportionate increase in physical activity. PPOR1 has a walk score of 57, while PPOR2 has a walk score of 87. The sale of PPOR1 was just under the purchase price ($582k vs $590k) but when adding stamp duty, selling costs, moving costs, etc, there was a bit of a bigger loss. However, I decided the cost of moving and buying PPOR2 to be worth the significant lifestyle and convenience improvements.

I continued my steady track of saving into my offset account after the settlement of PPOR2. An ongoing increase in income due to professional success in the following years, and following the discovery of r/fiaustralia in late-2018, the personal challenge I set myself to try and save 70% of my net income to guard against lifestyle inflation led to an even further increase in the rate of savings. The increased income, coupled with ongoing budgetary discipline and finance automation rapidly and steadily eroded the outstanding balance and now, as of January 2021, I have an offset account that equals the outstanding mortgage amount, two years and two months ahead of my original 10 year target.

Commentary

A quick browse through r/AusFinance and r/fiaustralia will show that there is a diversity of views on purchasing property. I decided upon the approach of buying a PPOR as in my opinion it is the best way to achieve the goal of secure shelter while addressing the challenges I articulated in the first few paragraphs of the Journey section. However, I wouldn’t presume to dismiss any of the other views that exist as they are a function of our varied circumstances and aspirations, and the argument of buying vs renting is not a purely financial decision. Buying is an approach that aligned with my circumstances, goals and risk tolerance, but will not suit everyone. Life is not a zero-sum game.

A few take-away messages for aspiring homeowners:

  • Be realistic with what you can afford, and remember that a first home does not need to be your forever home. You can always sell and buy again when your needs and means change.

  • Goal setting is a very powerful motivator and creating a realistic plan that maps out the key milestones along a timeframe to achieve a goal is the most important step anyone can take towards improving their situation.

  • Consistency is key to the success of any plan. There were many days where I felt that progress wasn’t being made, but because I was acting in alignment with a previously defined plan, I had the confidence that I was still progressing and that I had a high likelihood of reaching my goal. Self-discipline and stoicism are great attributes to develop in oneself.

  • Build flexibility into your plan by acknowledging that a plan can be changed at a later time if warranted by circumstances. I thought I would keep PPOR1 until it was fully paid off and never imagined that I’d sell PPOR1 and buy PPOR2 in the manner that I did. Selling PPOR1 for PPOR2 didn’t make the strictest financial sense. I would have paid off the mortgage faster if I had remained in place, but at a cost to my happiness. Happiness is very important to me, and so I changed my plan to accommodate.

  • Build enjoyment into your plan too. Life is there to be enjoyed, both the journey and whatever the desired destination. Any financial plan which doesn’t allow you to enjoy life along the way is not a healthy and sustainable financial plan. Seeking the right balance is essential, but what the ‘right balance’ is will differ from person to person.

  • After creating a plan, review it regularly, track your progress and make adjustments when needed, but do not obsess over it. There’s a lot more to life than spreadsheets. I checked in with my plan and reviewed my progress once a month only. I generally designate the first Saturday of each month to be an ‘overall finance review’ day.

  • Call your lender regularly and ask for a better deal. I did this yearly and more often than not found them willing to accommodate with either a rate cut or a one-off reduction in fees. I found it beneficial to have done some homework and to know what the rest of the market is offering. If they won’t assist, consider switching lenders at the next available opportunity.

  • The person who is best placed to look after your own interests, know your own goals, and understand your rationale is you. Seek advice from others by all means, particularly if they are more qualified or have more experience than you, but critically consider what you are told, integrate what you learn with your existing knowledge only if appropriate, and don’t think you have to follow everything told to you.

  • I see it often quoted that ‘Comparison is the thief of joy’. I don’t believe this to be exactly true. I think it is good to compare yourself with others, consider what others are doing differently, and think about why they might be doing that and what lessons (if any) you can take away. Envy on the other hand serves no purpose. A focus on discontentment and resentful longing blinds you to actions and opportunities that one can take to improve one’s own circumstances and is something to be assiduously avoided. One cannot change the hand of cards that one is dealt, only how one decides to play that hand. Focus and work on improving the factors that you can control (e.g. your income, your savings approach, your relationships, your education, your employment, and the modifiable factors affecting your health), and observe but do not obsess on the rest.

Lastly, I am very aware that I have had the privilege of circumstance. I have good health, secure, well-paying and emotionally satisfying employment, a supportive family and friendship group, and personality traits conducive to success. I was provided with the ability to live at home while saving for a deposit, the opportunity to have a tertiary education, and had a childhood and adolescence that was on balance happy, safe and nurturing where I was encouraged to learn, develop critical thinking skills, and was provided with an abundance of opportunity. I look at my achievement in that context.

The Path Forward

I’ll be taking a short break from my normal savings routine. There are several discretionary purchases that I have been promising to myself as a reward to mark this occasion, and I’m looking forward to finally getting my hands on these items.

Moving forward:

  • I will keep the mortgage open with the offset attached for the foreseeable future. The mortgage will continue to be paid at the minimum rate from the offset account, and the balance of the offset account will be my emergency fund that I can immediately draw on should the need arise.

  • I have no further debts, and so I will redirect all further savings to purchasing ETFs while letting the associated DRPs operate.

  • I don’t intend to make additional voluntary contributions to superannuation at this time as I expect to be able to assemble a portfolio capable of paying for my general living expenses before I reach preservation age. Once this goal is reached, I will divert future income into superannuation up to the concessional limit.

Thanks for reading.

I would be grateful if you could let me know if you found this write-up useful or interesting. Constructive criticism is always appreciated.

I wish you well on your financial journey!

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