Pay off your Mortgage and secure a strong pension

In just 10 years from now, how would you like to have paid off your home mortgage in full and have secured a strong pension?

In just 10 years from now, how would you like to have paid off your home mortgage in full and have secured a strong pension?


Most people recognize that investing in property is one of the best ways to build your long term wealth for you and your family.

Investing in property is not a get rich quick scheme.  You do need to invest some time, money and effort but this will be the best investment you will ever make. One of best things about property is that you work once and get paid forever. The effort that you put in upfront in finding each property and getting it ready to rent out is rewarded by the positive cash flow at the end of every month for as long as you own it, as well as the long term capital growth.

It is this long term capital growth that can help you pay off your home mortgage as well as build a cash generating portfolio of property investments. In the UK the long term trend for property prices is to rise. This is because we live on an island with limited space and an increasing population. Rents and house prices will naturally rise over time. With the current market conditions you need to educate yourself to make sure you purchase the right investment at the right price in the right location.

Deposit Funding

Typically you do need some money for your deposits to be able to invest in property. This deposit seed money could come from a number of different sources such as: your own savings, inheritance, redundancy money, profit from a business, borrowed from a family member or the most common source of deposits, the equity in your existing property.

Many people don’t like the idea of using equity in their own home to invest as they are worried about the risks! If this is how you feel, I would encourage you to think again. Here is a simple strategy where you can fairly easily pay off your home mortgage in full and build a property portfolio in just ten years. It’s a safe, steady strategy.

For the sake of this example let’s assume you’ve got some equity in your home. In fact for many years you have been working hard to pay off your home mortgage. Please note that if you are only ever going to have one property (the home you live in), then it is a very good idea to pay off your home mortgage as quickly as you possibly can. By paying off your home mortgage you will be reducing one of your biggest outgoing expenses and you will reach financial independence far quicker. However investors think very differently to this.

For most people their home is the biggest asset they will ever own. Many people are content to pay off the mortgage happy in the knowledge that over time the value of their asset will increase. If your home is worth £200,000 now then you could just sit back and relax and in 10 years time your property will probably double in value to £400,000. How would that make you feel?

Does this mean you are financially better off? Well, if your house is worth £400,000 you may feel much better than when it was worth £200,000. But in reality you are no better off. You see all the other properties will also have gone up to in value. If you wanted to move from your existing house, to a similar size house that would also cost you £400,000. In real terms you’ve had no net gain. And for you to benefit from that increase in value you would have to sell the house and downsize to a smaller, cheaper property or move to a cheaper area which is what many people do when they retire.

Using other peoples money

Investors recognise that it’s beneficial to have more than one property because they can profit from the increased capital value of their entire property portfolio, especially if they’ve used other people’s money to buy that portfolio. Just to clarify here. When you release the equity from your home you are in fact using other people’s money which is secured against your home. It’s not your money!

Consider this alternative strategy. Instead of trying to pay off their own home mortgage as quickly as possible investors will do the opposite! They will use as much equity as they can from their existing properties to buy more to expand their portfolio.

Remember in this example we are going to assume you’ve got £200,000 of equity in your own home and let’s say you could release up to 80% of the value of that equity, which means that you would be able to release £160,000 to use as seed capital for your deposits.

To keep the example simple we will assume the Buy To Let (BTL) properties you would purchase are worth about £100,000 in today’s market.

If you were to use 75% Loan To Value (LTV) mortgages, that means you could get a £75,000 BTL mortgage on each investment property and you would be required to put in a £25,000 deposit.

With seed capital of £160,000, you would have deposits for six investment properties (6 x £25,000 = £150,000) and you would have £10,000 left over to cover your purchasing costs such as solicitors and survey fees.

You would then be the proud owner of a property portfolio containing you own home (worth £200,000) and 6 investments at £100,000 each (6 x £100,000) with a total value of £800,000. How would that feel?

Don’t forget that you will also have some debt! There is the £160,000 mortgage from your own home, and you also have six BLT mortgages of £75,000 (6 x £75,000 = £450,000) which means your total debt is £610,000. That might feel like a lot of debt and that might scare you, but the great thing is you are not going to be covering the cost of that debt. The tenants in your rental properties should be covering the cost of all the borrowing.

£1M of equity

Having done the initial hard work finding and buying the right six properties you sit back and wait! I would always recommend using a good quality letting agent to manage your properties for you, so that you don’t have the hassle. If property prices were to double on average in the next 10 years your total portfolio would increase in value from £800,000 to £1.6M.  Your outstanding debt which was taken out as interest only mortgages is still only £610,000. That means you have almost £1M of equity, that’s quite a good lump of equity to have.

At some point in the future you would want to pay off the mortgage on your own home. Each of the investment properties would be worth £200,000 with a BTL mortgage of just £75,000. What you could do is re-mortgage some or all of those investment properties to pay off your own home in full. Let’s say you re-mortgage each of the six investment properties to release just £27,000 from each one. That would give you £161,000 in cash which you would be enough to clear all of the debt on your own home and you would still have the six investment properties (with just over 50% borrowing) giving you a rental income and almost £1M in equity.

So here’s the big question! Would you rather do nothing, just sit back, wait and in time your home may double in value from £200,000 to £400,000 without any of the effort or, would you rather educate yourself take some action and in the same time period end up with almost £1M in equity instead of just £400,000? Now take your time…..don’t make any rash decisions…. which would you prefer? I think I can guess which it would be.

Let me ask you, how long would it take you to save £1M? For most people it would never happen. But in this example it was possible by purchasing just six investment properties. To build a strong pension you don’t need hundreds of properties in fact less than 10 would be enough for most people.

I hope this article has inspired you to take control of your financial future.

Thanks to Simon Zutshi for this fantastic article. Simon has been investing since 1995. He is generally recognized as the top UK speaker and educator on property investment. He is the founder of the property investors network (pin) which provide a supportive environment for investors like you to learn more about successful property investing. There are currently monthly pin meetings in 11 cities around the UK. For more details visit the pin website.

This information in this article is taken from Simon Zutshi’s book “Property Magic 2010 and Beyond: How to buy property using other people’s time, money and experience.” Property Magic is an Amazon No 1 best seller and highly recommended. You can buy it here:

Property Magic 2010: How to Buy Property Using Other Peoples Time, Money and Experience


Simon Zutshi
Founder, Property Investors Network

Simon Zutshi is founder of the property investors network


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