Revolving credit to nowhere

Paul and Karen bought their first home with a revolving credit mortgage three years ago. The interest was slightly higher than the fixed term option, but they wanted to pay off the mortgage as quickly as they could – with the revolving credit option they could put as much of their income towards repayments as they liked.

But it hasn’t worked out as planned. Neither of them is very good at resisting temptation (holidays, nights out, new clothes…), and they're always running their balance at the limit of their available credit – in other words, they aren’t making any mortgage repayments, just paying interest. They’ve had their mortgage for two years, and they’ve paid off nothing. They realise that they aren’t getting ahead at all.

They’ve got life goals – they want to increase their wealth (otherwise known as their net worth) and have kids like most of their friends. But with the mortgage at its limit, the money side of having kids is pretty scary. They decide to do something about it.

They decide to get sorted. They convert their mortage to a fixed interest, fixed term arrangement. They set the repayments at a level that pays off more than the required amount. And they get repayments deducted straight from their wages.

Under the new arrangement, they're making some small sacrifices in their lifestyle now (they don't go out for dinner as often as they did before), but they see the long term benefit. Their net worth is increasing quite quickly, and they are building a financial buffer of money that they could use in an emergency. Now they're starting to feel more comfortable and excited about having kids.