I just came across this very old story on your house when I was looking through your blogs to find a guide on Bitshares.
You took two jobs and paid off your mortgage early. You learned the damaging impact of compound interest, did the maths and formulated a plan to defeat it. Well done!
42 years ago I was working two jobs to finance my first one-bedroom flat. It cost GBP 13'000. My first salary, as a beginner banker in the City of London was £900 a year. My second salary, as a nightime bingo-caller was £1'250. The bank rules didn't permit me to have a second job, but there was no way they could have found out. Back then it was so hard to get on the housing ladder. You had to really struggle, make a lot of sacrifices and compromises. Two jobs and a lodger was a necessity.
Some people today say house prices are too expensive for the ordinary guy. This just makes me laugh. They feel they have a sense of entitlement, and won't make sacrifices. Smart-phone or house. Netflix or a second job. Lodger or space. They won't make the tough decision.
In 1975 the interest rate on my mortgage was 12%, so all of my second salary went in mortgage payments.
I had nothing left to live on. I spent nothing, not even a TV. I moved in a girlfriend and got her to pay some of the mortgage interest instead of rent. Having a girl in my bed was good, but apart from that it was annoying with two people living in such a small space, so I sold the flat two and a half years later as part of my strategy of separation from her.
I made a good profit. I sold the flat for £23'000 after owning it less than 3 years. Nearly doubled my purchase price and made tenfold my equity. I learned that borrowing money can leverage your profit.
From 1975 to 1985, inflation was very high and it seemed like house prices were guaranteed to rise forever.
Roll forward to 2015. My bank was closing so I had to re-mortgage. I thought of paying off the mortgage in full. I had the assets - in investments. With interest rates below 1%, I figured the 3 % dividend yield would more than cover the mortgage interest.
6 banks bid to lend me the money. Finally I took out a 100% mortgage, (yes, I know that's illegal for the bank - but they are salesmen, and they need to do the deal, so we bent the rules a bit here, and a bit there to get to the 100%). I split the loan into 6 tranches with fixed maturities of 0 years (Libor float) to 5 years, all slices at fixed rates below 1%. My average interest rate was 0.89%.
Since then, a couple of the slices have matured, and I have rolled the maturing slices for 5 years at a new fixed rate. The interest rate on most the recent slice rollover was fixed for five years at 0.99%, so my average rate stll remains below 1% per annum.
As far as I am concerned, this is free money. Anyone should be able to make long term returns well in excess of 1% a year. That's why I didn't pay off my mortgage like you. I have more exciting investments to make. Sure, the leverage could go the wrong way - house could prices fall, equities might fall, gold somtimes falls, bitcoin falls, and interest rates could rise. It's a risk I'm willing to take. I might not retire so early if it goes wrong. Meanwhile, I am gradually increasing my bitcoin exposure, aiming for the 5% to 10% range. Could get there faster than expected if the price continues to rise.
Advanced financial calculations should factor in risk (and systemic, devastating risk as well). There's more to my story you can read here: Living on a Boat for Two Years Shaped My Life. My parents didn't respect debt and it bit them hard.
Be careful. Playing with debt is playing with fire. You're banking on the idea that you're smarter than the banks who get bailed out by governments. IMO, you'd be better off with no debt and using your income to work for you all the way, without risk. Right now, you're taking on the risk, not the banks, because if we hit another 2008 crisis they will do bank bail-ins instead of bail outs. People will become part owners in worthless banks. They will have "shares" that are worthless. It's some scary stuff. We should plan accordingly and for me and my family, being out of debt is the best move.
You are indeed absolutely right. Playing with debt is a dangerous game. When the next crisis hits - maybe bank bail-in, nuclear war, plague, south american default, new digital US dollar, (defaulting on the old one), or housing decline, those with too much debt will get slaughtered. In the back of my mind, I've always thought I had a plan, A,B,C,D and E if an asset class collapses, but I will re-evaluate how it would work out in a range of scenarios - and how I would feel. On the latter point I have some experience. I got divorced in 2008 and had to sell every asset I owned at the bottom of the market. House, car, pension fund, shares, gold - basically everything. Financially it hurt like hell, but I was happy as a lark as I had my work and could use the leverage of future salary, (in part that explains the 100% mortgage I now have), to re-leverage and get back to where I was before I gave it all away.
Well now I am back to where I was, l agree, it's a good time to pay off some of that debt. I will work out a plan. Hate to sell my BTC though.
I will read your other articles - e.g about the boat. There's a lot of your blogs I plan to read. I can see it is very high quality. You write well.
I think Bloomberg has a stress test function. You put in your asset allocation, and it tells you what would have happenned in virtually every crisis since the South Sea Bubble. It's going to be interesting to play with, but the obvious flaw is that the next crisis is a black swan and they have no data on that. Also, it can't tell you what happens to crypto, or these new things that everyone calls alternative investments.
Thanks for the compliments, I do appreciate it. Sounds like you've got a good plan and you're thinking things through. Good luck!