In these first couple of posts I thought it would be nice to write about how our journey into personal finance started. I have always been a personal finance weirdo. I can remember using an accounting notebook to keep track of my income and expenses starting at age 15. Unfortunately I don’t have that notebook anymore, it would be fun to look at and see how I was spending my allowance.
Today I would like to start with how it all started with buying a house at the height of the housing market.
My partner J. bought our starter home in 2008. I was 21, still in school, and only made a couple of hundred euro’s a month. At that time, rentals in our town were hard to come by and rents were very high. Also everyone was telling us that rent is throwing money away and we would be better off buying something. So he did, only 6 months after graduating college and with no money down. At that time banks allowed people to borrow more than their home was worth so you could include all the closings costs and insurance in the mortgage as well. The purchase price of our home was €226.000 but the total mortgage amount ended up being €250.500. Interest only mortgages were also the way to go at that time, so 70% (€170.500) of that €250.500 was an interest only mortgage. The other €80.000 was a savings mortgage. This is a typical complicated Dutch mortgage, invented for tax reasons, so let me explain. The €80.000 mortgage remains outstanding until the end of the 30-year loan. Attached to this mortgage is a blocked savings account where you save for 30 years and receive the same interest as the interest rate that you’re paying on the mortgage. After 30 years there is €80.000 in the account and you pay the mortgage off.
At first we were happy in our house and the prices in our street went up until mid-2009. After a few years we started to have some problems. We found out that we did not like living in the small town anymore that we both grew up in and we wanted to move to the nearby larger city. Also we got new neighbors that were extremely loud and noisy and did not respond well to our requests to keep it down when they were having parties until 3AM midweek. Since J. bought the house by himself I wasn’t really involved in the mortgage when he bought the house, but I started to look into the mortgage documentation in 2012 to see where we would stand if we wanted to move. I found out that because of falling housing prices and the interest only mortgage, we were severely underwater on our house so we couldn’t move without incurring a lot of debt.
I hated that feeling of being stuck. I literally felt like we were chained to our house like a ball-and-chain.
At that time a Dutch writer published a book about being mortgage free and how he paid off most of his interest only mortgage. Paying off your mortgage early was a radical idea at that time. In Holland high student loans and credit cards are not nearly as widespread as in the US, but we love to over borrow on our house. We found his story very inspirational and motivating, so we started looking into paying down the mortgage as well. Around that time I also started to read more about personal finance online.
In June 2012 we made our first extra payment of €500 on the interest only mortgage. Other houses in our street were selling for €185.000 at that time, so we had a lot to pay off before we could move without debt. That first year we paid off €3.500 and if felt like a huge accomplishment. It also felt really good to be doing something about it. With every payment we made, we were getting some of our freedom back.