Paying down debt bit by bit

It’s not easy to lose weight. To lose just one pound a week, you need to have a calorie deficit of 3,500 or 500 calories a day. It is bit by bit but you will get there and then you are down to your ideal weight and feeling good. But if you expect too much to soon, you get disillusioned and end up eating a Big Mac meal and putting the weight back on.

When people come to talk to me about money, they often tell me that it’s pointless paying a small amount extra into their mortgage as it is a drop in the ocean compared to the overall debt. They go and spend that money instead and get very little benefit from it.

Paying down your mortgage bit by bit

When planning to pay down your mortgage, you have to remember that you took on a large debt for a long amount of time. Mortgages are usually 30 – 35 years these days so to expect it to be paid off in a few years is not realistic. But if you pay it down bit by bit, it can make a real difference.

If you had a €300,000 mortgage over 30 years at 3%, your monthly repayments would be €1,236 a month. You will repay €444,960 over the term of the loan. Say you paid €5,000 into the mortgage every year. It will make very little difference to the debt owed initially but you will pay your mortgage off 9 years and 8 months quicker. It will also save you €43,376 in repayments!

What if I put the money in the pension instead?

What if you put that €5,000 into a pension instead? With tax relief, you would be able to contribute €8,333 a year for 20 years. At the end of 30 years, your pension fund, growing at 5% per annum would be worth €269,305.

If you paid down your mortgage early and invested the mortgage repayments, €2,060 into a pension instead for the remaining 10 years, your fund would be worth €306,450 in 30 years time.

Between mortgage repayments and pension contributions, it has cost you the same amount but you are €37,145 better off by paying off your mortgage first.

Financial planning takes time whether it is paying off a mortgage or building up a pension fund. Don’t expect it overnight but plan well and consistently and you will accumulate the assets to fund your lifestyle.

If you have any questions, drop me an email at