Another Extra Mortgage Payment

Today I made another extra mortgage payment on our big loan. It’s far less than usually because. The reason for that is that we are still waiting to see how much the repairs on the rental property are going to cost and also because we are expecting a bill from the tax authorities for a few thousand dollars any day now.

We decided to split what we would usually put towards the mortgage in two, half of it went towards the principal of the mortgage while the other half went into our emergency savings account. It’s nice to see it swell a bit. This month, we are only paying an extra $1,462 / 182,692 ISK.

Paying extra on our mortgage using our online bank
Paying extra on our mortgage using our online bank

In total we saved $2,923 / 365,384 ISK, which is 50% of our income. That’s too slow for my taste, I’d like to see that number at 70%, although according to this early retirement calculator, we just might reach our goal if we play everything correctly before we reach 40.

As usual, we were hit by some unexpected expenses and some expected expenses this month. The expected expense is our trip to the US to visit relatives and also the survey the land we just invested in. We’re going out there to meet with a representative of the Virginia Health Department to get a building permit and also with a well and septic system contractor to lay out the location of the house we’re going to build as well as the well and the septic system. You can read more about our project on our house building blog.

The unexpected expense was a $1,000 / 125,000 ISK bill from the tax authority. Apparently we forgot to include some freelance invoices in our tax return and are now being charged a penalty as well as the missing tax. This was a pure oversight on our half. We really need to get better about organizing invoices and keeping track of tax issues. I’m on that.

Success! And poor English.
Success!

Changes in our emphasis

After the latest renting disaster we started thinking that it might be a good idea to diversify. We have very little liquid cash on hand which is not generally very good. We have been thinking really hard about what exactly we can put some of our money in and so far the only other thing we can think of is either Iceland state bonds or the Icelandic stock market. Both of those do not sound very appealing so for the time being, we’re putting it into a high-interest savings account. They are actually quite good (for the time being) with interest rates around 4.6%

Once the capital controls are released (in Iceland, since the financial crisis, you can’t transfer money out of the country). Were were thinking about investing in real estate REITs. These are special financial constructs that invest in real estate only, such as buying office buildings and renting to companies or buying shopping centers and renting to retail companies. We can only start to fully think about how we want to diversify when we see some movement towards the Icelandic government lifting the capital controls.

 

The current tally

Whenever the last post is in a previous month I’ll include the repayment tally like the one below. I’ve fixed the interest rate at 1 USD = 125 ISK (the average February rate for the last 5 years):

  • Assets: $460,477 
    • Real estate: $455,506 / 56,938,190 ISK
    • Cash: $4,867 / 608,394 ISK
    • Stocks: $104 / 12,966 ISK
  • Debt: -$127,942 
    • Mortgage: -$127,868 / -15,983,531 ISK
    • Credit Cards: -$74 / -9,295 ISK

Sum: $332,535 (Up 1.1%)

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Paying Extra on Our Mortgage

Today I am going to go to the bank. I’m paying extra on our mortgage. $2,726 to be exact, that’s 350,000 ISK in the local currency. By going to the bank I mean doing it at my computer, at work, during lunch. Here’s what it looks like.

Paying extra on our mortgage using our online bank
Paying extra on our mortgage using our online bank

It’s a bit less than we normally do. Our plan is to make regular monthly payments of $3,850 (500,000 ISK), and ideally we’d like to make payments of $5,000 (650,000 ISK). There are a couple of reasons why we are paying less than we would like to. The main reason is that I’m currently the only one working. Ben is doing some freelance here and there but his main job is to take care of Daníel, which is a full time job with freelance on top.

Another reason for is that we seem to keep getting hit with unexpected expenses almost every month, running 6 months now. This latest one is a huge hot water utility bill (yes, hot water is delivered to homes in Iceland and is used for heating and general warm water uses). We ourselves use hot water with care. I suspect it’s our tenant that’s blasting hot water through the radiator system. We made one big mistake when we rented out our guest house and that is we didn’t make utility payments a part of the monthly rent. In the future we will make sure that the utility expenses are included and reflect the guest house’s share of the total square area. This will encourage people to use resources more wisely. In any case it’s too late for the current tenant for now but you always learn.

Success! And poor English.
Success! And poor English.

Why pay down the mortgage?

Why are we paying extra on our mortgage rather than investing in stocks or putting our money in a savings account? There are several in our eyes excellent reasons for this. The number one is security. Investing in real estate is one of the few investments that survived the financial crisis in 2008. The whole stock market collapsed and I’m not just talking about it going down by several percentage points, I’m saying that most (if not all) of the companies listed there and all the funds traded there went bankrupt. We would have been back to square one.

The other reason is that we are living under capital controls. We can’t invest in foreign stock markets. I’m sorry but I can’t view the domestic stock exchange with less than 20 companies as diversified enough, let alone a safe retirement option. The grandmother of a friend of mine summed it up nicely the other day. She’s from a well off family and had several investments of various types: Of all my investments, only concrete has proven reliable (most houses are made of poured concrete here).

How can we pay so much extra?

How are we paying able to so much extra towards our principal every month? Its not an exact science. We didn’t decide one day that we were going to take such a large part of our salary aside and repay our mortgage with it. It started much smaller but snowballed along the way. We like to consider every large purchase we make an investment if at all possible. That’s one of the main reasons why we bought our house (it had a guest house we could rent out). Repaying the mortgage early is a good investment in our eyes. It saves us years of interest payments (remember that we can not get anything back from taxes here in Iceland) – and it reduces our inflation risk by a huge amount (remember as well that our mortgage is inflation linked).

Taken together, our decisions have caused us to have low monthly expenditures, but has steadily increased our monthly income.

The current tally

Whenever the last post is in a previous month I’ll include the repayment tally like the one below:

  • Assets: $459,446 
    • Real estate: $455,506 / 56,938,190 ISK
    • Cash Savings: $3,839 / 479,867 ISK
    • Stocks: $101 / 12,625 ISK
  • Debt: -$130,492 
    • Mortgage: -$130,460 / -16,307,456 ISK
    • Credit Cards: -$32 / -4,031 ISK

Sum: $328,954 (Up 1.5%)

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