How We Paid Off $340,000 Mortgage In 3 Years By Saving 86.5% Of Our Income (HisHerMoneyGuide)

Alex and Ellie – a pair of 34-year-old married Australians who run HisHerMoneyGuide – paid off their home loan of $340,000 in just 3 years and 3 months.

Their blog is aimed at people with only basic financial knowledge. They’re looking to retire by age 44, and are using the site to educate and inspire others to replicate their dream.

As part of our “Get out of debt” series, in this joint guest post, Alex and Ellie share their experiences of managing an impressive home loan feat, and what you can learn from them. The following figures are in Australian dollars AUD$1 = approx US$0.72).

 

What do you do for a living?

Alex works for a government agency as an office professional. His salary is $90,000, and he has been in his career for 12 years now.

Ellie works as a researcher and has a salary of $120,000. She has now been working for 10 years.

We both have fairly demanding jobs that require fairly long work hours. Ellie has more time in the lab, and Alex has less office time but is required to travel for work more.

 

Do you have a degree and are you currently using your degree?

We both have degrees and post-graduate university qualifications that we’re using as part of our day-to-day roles. So thankfully going to university wasn’t a waste of time for us!

 

What major debt have you paid off that you feel is a hurrah moment for you?

In November 2014, we bought an inner city house for $550,000. We took out a home loan for $340,000 from the bank.

Believe it or not, we managed to pay it off in just 3 years and 3 months. And that makes us feel fantastic.

It’s the biggest individual debt we’ll ever have in our lives, and managing to pay it off so quickly was satisfying, to say the least.

Given that more than 10% of Australians aged over 65 still have a mortgage, for us to pay it off when we were then 33 feels like an incredible feat.

There’s a reason why mortgages are 30 or even 40 years long these days – because a lot of people take that long to pay them off.

 

Do you rent or own your own home/condo/apartment?

Thanks to paying off our home, we can genuinely say that we own our home and not the bank.

In fact, it should be mentioned that we’re firmly in the homeownership camp. Neither of us has ever rented a property.

We’ve either been living at home with our parents or in our own properties.

 

We’ve spoken about the rent vs buy debate on our blog, and there are definitely strong arguments for both sides.

If you’re smart with your money you can rent and be financially independent. There can be a gap between the cost of renting and buying, generally in renting’s favor.

But you need to be prudent and not waste that saved money. If it’s invested instead, you can be just as financially successful as owners. So rent money isn’t always dead money – unless you let it be.

That said, for us and our values, we prefer homeownership as a more secure platform to secure our lives.

 

Check out our own debate of sort in the post about 6 reasons you are not ready to buy a house.

 

Which side of the argument are you in terms of paying off mortgage vs investing?

We bet you can guess the answer to this one. We’re 100% on the side of paying off the mortgage as soon as possible.

We’re very financially conservative, and we see most forms of debt as a liability that should be paid off immediately.

We fully understand that there are arguments against prioritizing paying off your home loan and investing the money instead. But paying off the home loan is a less risky option for us.

We had a couple of reasons that played on our minds that made us go for paying off the house.

 

The debate continues. Although my stance is to invest rather than pay off morgage, I agree with our guest here. You can find this in our post – Dave Ramsey is outdated, try our 12 toddler steps to financial freedom instead.

We use the concept of time value of money to justify investing versus paying off a mortgage, however, not everyone is discipline to invest the difference. Paying mortgage can be forced savings.

 

Firstly, until we owned our home outright, it was technically the bank’s property.

If anything happened to our ability to pay off that home, we could default and lose the house (financially disastrous) and our home (personally devastating).

Secondly, you saw what’s possible at the end of 2018 when the markets didn’t fully crash, but they arguably corrected themselves.

Had we been investing money at the time we would have lost money, while we would have been building up equity in our home instead.

So for us, it’s the safest option when given those two alternatives. We’re still young, and very eager to retire early.

But not at any cost, and leaving a home loan behind would feel like a gamble to us. And we aren’t fans of losing money – we’re happy generating wealth more slowly if that’s what it takes.

 

Describe to us the strategies you used to pay off that debt

One slightly out of the box way of thinking about the way we paid off the debt was actually by minimizing our debt. That helped us in a couple of ways.

For starters, in 2015, the average outstanding home loan amount in Australia was $382,400. So we managed to slide under that by a little bit at a time when the average Australian house price was $660,000.

So we saved a good $100,000 just by buying a below average home. If we bought a more expensive house it goes without saying it would be worth more, but for us, our objective when we bought was to purchase a house that met our minimum requirements.

We didn’t get suckered into buying an extra nice house that, sure, would have better fittings or be bigger. But we didn’t need it, so we stayed away from it.

Another way we minimized our debt before we even paid a cent off it was by maximizing our home deposit.

Most of the time you need a minimum 20% deposit for a residential property in Australia. Instead, we provided a deposit that was almost 40%.

So that should definitely be food for thought for people and a completely different way of thinking about getting out of debt. Minimize your initial costs!

But you probably don’t care about that and just want to know about how we paid off the loan we had, right? 

 

What percentage of your monthly income do you save?

Paying off a $340,000 loan in 39 months is really only possible due to our incredibly high savings rate vs our income. Share on X

We saved 86.5% of our post-tax income in 2018, and similar amounts in previous years (apart from the cost of bank interest while paying off the loan). In 2018 that meant we saved $135,000 of our post-tax dollars. It was similar in 2017. 

 

That is some impressive number!!! Saving 86.5% of after-tax income Share on X

 

But we got new, higher-paying roles at work in the last couple of years. So when we started with the loan we were actually only saving around $100,000 a year.

So to answer your previous question on what strategies we used, we basically just hit the loan hard.

We did make a few small share purchases in that time when opportunities cropped up. But essentially we threw the vast bulk of our savings at the loan.

We’re pretty fortunate to both be in well-paying jobs, to begin with, which allowed us to save our initial deposit. But we needed to be frugal, disciplined and committed to pay down the debt fast.

There are so many temptations around us. Who wouldn’t want a bigger TV, a new car, nicer clothes, etc? But our mentality is to go with the minimum that we need and throw ourselves at our goals. So it was a matter of throwing money at the problem to make it go away.

And we had a good reason to pay off the loan as soon as possible. The longer we waited, the more we’d lose in interest to the bank. We prefer to keep our money!

 

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Do you budget? Why or why not? Which method do you use?

We certainly do have a budget.

We’re at a high enough income that we don’t need to worry about our outgoings to make ends meet.

We trust ourselves to be responsible spenders, so don’t need to keep at whether we have enough money left to pay the bills.

However, we started keeping track of all of our expenses at the start of 2016 so we better understand where and how we were spending our money.

We don’t think it’s a coincidence that our spending dropped 13% in 2018 compared to 2016 (see the previous link). We were able to identify areas that we thought were excessive, and we were able to save money.

 

101 epic ways to save money that you don’t know about.

 

However, our expenses were already very low, to begin with, so we only saved $3,000 per annum. But for some people, that sort of saving at the end of the year would be a lot.

So it really pays to be mindful of your expenses, and that’s where a budget and tracking your expenses is great.

 

Here is an article that shows you how to budget your money to live the life you want. 

To balance it up, we talked about limitations of budgeting and to know if budgeting is right for you 

 

Do you have any other debt left? What kind of debt? What are your goals to pay off this debt?

The only debt we have in our lives is via two investment properties. They have about $384,000 in debt between them.

Although we wish we didn’t have debt at all, the investment properties are effectively cost neutral.

That means they pay off their expenses with their rental income, but not much else. As long as they continue to get income – and we’ve got a pair of good tenants thankfully at the moment – then we’re comfortable with slowing paying them off with a principal and interest repayment loan.

We’ll continue to keep them in debt until just before we retire – it’ll be the final push until we pull the pin on work.

Having debt on them is tax effective currently, as we can claim expenses (like loan interest) on tax.

 

Do you have any passive income sources?

We do have passive income sources, but they didn’t actually help with paying down our home loan.

Like we said before, our investment properties are cost neutral.

However, we also have a pretty large share portfolio worth around $725,000 that in 2018 generated $53,000 gross (pre-tax) in dividends.

The vast bulk of the post-tax dividends goes into dividend reinvestment plans, which allow us to purchase more shares in the companies we invest in without paying brokerage fees, and sometimes at a small discount to the market price.

Building up this share portfolio is critical in our investment and retirement plans. It’ll be our main source of income (far more than the investment properties).

So building that is our number one priority at the moment. Once we have enough shares, then we’ll tackle our remaining investment property debt.

 

So our final word to readers looking to pay off their debt is to clearly plan your financial goals, and prioritize how you’ll tackle your debt. Don’t just broad-brush your investments with a piecemeal approach by paying a little bit here, a bit there. Attach your targets! And when you hit milestones (like paying off debt) it invigorates you and makes you want to tackle your next objective.

Thanks for featuring us!

Cheers,

Alex and Ellie

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Another excellent interview. Binge, on the whole, get out of debt interviews.

Other posts in the series include 

Xrayvsn crawled out of $600,000 debt and the worst divorce in history and still managed to reach financial freedom.

From one Geek To Another became debt free at a tender age of 27. Phenomenal post, soo good, it also got featured by passive income journal club MD.

The Frugal Fellow kicked it up a notch and lived with his parents for few years to pay off student loan debt.

Money Saved Is Money Earned is the master in stretching that dollar. Low income did not stop him from getting out of debt.

Check out some of the tricks we used to pay off over $200,000 student loan debt by 6 months out of training. 

Let us know if you have paid off a certain debt and would like to inspire others. 

Please comment and let us know what you think or add your own story

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