Paying Off The Mortgage Faster

Paying Off The Mortgage Faster

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“Today, there are three kinds of people: the haves, the have-nots, and the have-not-paid-for-what-they-haves.” Earl Wilson

A number of subscribers have reached out to me this week with the question of “how can we pay off the mortgage faster”? I have chewed this over all week. Am I the right person to ask? I don’t have a mortgage. I have had one but houses were cheaper when I bought so is what I have to say relevant? How big are the mortgages of today anyway? I’m sharing a little of my thinking of what did work for me. If you can take a little bit from this and apply it to your own circumstance then that would make me happy.

So, I did a bit of research. Statistics NZ tell me that we have a median mortgage value of $172,000. I also asked five homeowners I know a question, “how big is your debt?” This crowd happily answered and their ages ranged from 36 to 47, some with kids, from all over NZ, some on one income. Names have been changed to anything I could find that started with A:

  1. Amy - $65,000
  2. Angus - $100,000
  3. Ann - $114,000
  4. Aroha - $480,000
  5. Art - $550,000

And now I’m stuck. Where to from here. My first thought is $550,000 is a shite load of money. Amy’s $65,000 debt sounds much better to me. If I wasn’t currently under the watchful eye of my nine year old who follows me around with a swear jar, charging me “20c a swear” I would use a few more expletives here (I had to pay her $10 last month; I’m not proud of myself).

This won’t be news to you if you also have a mortgage; houses take all of your money for a very long period of time.

Amy told me that she is aiming to pay off her debt by 2019 and that they are paying off a lot more each fortnight than required by the bank. So their payments are probably about $2,000 a month.

Using the ANZ calculator Art and his whanau have a longer payback period. I’ve guessed it is probably 30 years. They will be in their 70’s. Meaning their monthly payments would be about $3,200. Over the life of their loan they will pay back not just the $550,000 they borrowed but almost $600,000 in interest. I’m swearing in my head again *%^$#

Ann pointed out to me that her loan ‘should’ have been lower but her car broke down and she bought a new (used) one, plus she HAD to carpet her house. We were guilty of this when we had a mortgage. We HAD to have a brand new car. So many/most of us add to this house debt with a chunk of consumer debt that we tack on to the mortgage. Lounge suites, holidays, vehicles, caravans, breast implants (true story)… All things that we believe add value to our lives but serve no purpose in improving the house that the bank is letting us live in while we pay them back.

Let’s get sentimental for a moment. Watching our house get demolished in Christchurch after the earthquakes was incredibly painful and made me come to the realisation that we tie up too much of our emotional selves into a property. When the digger wiped our house away and hauled it off to the dump it revealed that we only ever occupied the top 60cm of the site. There was barely an indentation where our whare had been, where we had lived a life for ten years.

Let me tell you one thing. I don’t give a toss what your lawn, house, car, lounge suite, kitchen etc looks like. I care about who is sitting in the house. I visited a friend this week who was having a tidy up. There was stuff everywhere and we sat at her kitchen table surrounded by stacks of kids games and mismatched furniture with her overly large (and growing) puppy trying to break down the front door so he could come in for cuddles. And I had never felt so at home. A home is the people (and puppies) who are in it.

One of my mortgage holders above wrote to me with the following comment:

“I think people have debt because they are trying to keep up. We don't try to keep up. Our car is 15 years old, our house is small but comfy. We are not early adopters so don't need the latest and greatest... it's very freeing not caring by comparing our lives to others.”

And one last story before I give you my top five tips of how to pay off your mortgage.

I know of a couple who were seeking a mortgage for a $600K property. A willing bank would lend them 90% but they could not come up with the remainder themselves. Their ever helpful mortgage brokers suggestion? Borrow the rest off family. That would mean they had 100% finance. This was the most shocking thing I had heard.

MY advice to them?

Run! Run a mile! My heart rate is going up while I write this!

What would I have done? Well, run a mile for one and then found a property worth half of that value. Moved to Gore if I needed to. I have friends who are more than happy living there! And they are not bogans.

HOW TO PAY OFF YOUR MORTGAGE FASTER:

I’m talking about your own home here, not investment properties. I’m still not interested in them at this point in time. In my humble view they are a large part of the reason why homes are becoming so unaffordable in the first place. They suck up the supply, which increases the demand, which in turn increases prices.

TIP 1: MOVE

Owning a home appears to be in our DNA. Having lived in so many terrible rental properties with greedy landlords it compelled me to buy a house. We were living in Wellington in 2002 when we first struck upon the idea of buying but houses were expensive there. We all quite happily move around the country (or the world) for a job so why not get mobile to get a house we can afford? So we moved to Christchurch and paid a lot less for our first house. AND got great jobs. If you are reading this from Auckland, google house prices in Invercargill and prepare to be wowed!

TIP 2: DOWNSIZE

When we got to Christchurch we visited the banks. They offered us triple the $120,000 that we ended up borrowing. At the same time a colleague in the same financial position as us bought a house “on the hill” for $350,000. His ego was extremely large and he enjoyed being slightly above the smog level that hovered over we losers on the flat. He struggled with payments because he also had a life to live: a divorce, child maintenance, expensive clothing, image upkeep. We on the other hand bought a three bedroom, one bathroom good solid home that was ugly but could be made pretty with a bit of work.

Do you have the right house? Did you buy four bedrooms because Aunty wants to come and stay for three days every year, but you never use it the rest of the time? Did you buy for appearances so people could be impressed with all you appear to have? I have a great friend who I love to visit. But we don’t stay with her, we stay down the road with her Mum. She and her husband have a one bedroom home. Its beautiful, well appointed and extremely affordable. They did not want to be saddled with an extra $50,000 or $100,000 debt for a second and third bedroom. I applaud them. I’m all for home ownership, just not an expensive one.

TIP 3: REFINANCE

Our mortgage comprised of $40,000 on floating interest and $80,000 on fixed interest. I had a good fixed income but my husband’s was variable as he was starting a new business up. After a couple of years we had paid off the floating portion, my husband was now earning well but we could not do bigger payments on the fixed component. This is where my dislike of banks began. We had the ability to pay more but they would not let us, we would have been penalised. Why? Because they would miss out on interest/money. So, when it was time to review the mortgage and against their advice we switched it to a revolving credit/flexible mortgage. Or a ‘revolting credit’ mortgage as my better half liked to refer to it.

Our attitude was always that this would enable us to pay it back faster. Less interest to pay. We were racing to zero. From the get go we were motivated, had good self control and got huge satisfaction about seeing the balance make its way down.

The attitude of the bank was that we would repeatedly push this loan out to the max. More interest for them. We were their worst client. I recall when we finally paid all of our entire loan off after six years I went to the bank to change our accounts to get rid of the facility. They really strongly encouraged us to keep it, wait for it, because “we might be out and about this weekend and see a house that we just had to buy and the lending facility would already be in place”. Yep, that’s NOT going to happen. I know of one woman who bought at the same time as us and used a flexible home loan. She currently has zero equity after 16 years. And zero willpower. You have to be motivated and have the ability to stick with it, otherwise stay away.

Always be keeping up to date with what other banks are offering and use this when renegotiating your loan. Banks LOVE you, they WANT you to borrow their money. They also don’t want you to be a risk, they do want their money back in the end. EDUCATE yourself before sitting down with them. Push your own agenda - to reduce debt - don’t fall victim to theirs.

TIP 4: STOP BUYING CRAP YOU DON’T NEED

I can’t really elaborate on that, it pretty much sums it up. Put that money on your debt instead. That swear just cost me 20c.

TIP 5: EARN MORE

If you are not already earning at the top of your pay scale ask for more money. Before doing this ensure you are an asset to your boss and are worth more money! If not, get your act together and then go plead your case. What about a side hustle? You could write a blog like me and earn no money at all from it. No, wait, don’t do that! You could google ‘side hustle’ and come up with a multitude of other things to try to add that bit of extra income. Or, chances are you are at your earning maximum in this job, in which case refer back to Tips 1 and 2. Newsflash, you can’t afford your current house.

Finally, what is with the New Zealand property market? It is bonkers. Completely and utterly. Prices have gone crazy and I feel for those trying to scramble onto the bottom of the property ladder and the rest of us who are already sitting smugly on it should spare a thought for them. It is impossible to save enough to buy a house outright, we DO need mortgages. We need banks. But over extending yourself with large weekly repayments leave you with little cash to do the other things you need to do in life.

Our household debt levels are accelerating at a fast pace, the highest ever apparently and this is of course due to low interest rates and slick advertising from banks encouraging people to take on more debt. I read a statistic saying there is $100K of debt for every man, woman and CHILD in NZ! I was kinda hoping that was an “alternate fact”.

This is a good place to mention New Zealand Home Loans www.nzhomeloans.co.nz. This is the only offering I have found that genuinely wants to help people nail debt. They do this by looking at your entire expenditure and lifestyle needs (and wants). They tailor a payment plan to you and enable you to track daily, weekly, monthly and yearly how you are doing. A friend is currently using them and is finding them extremely EFFECTIVE. They view a mortgage as a means to an end. The end being owning it outright as quickly as possible.

You need to service this over a long period of time and if your circumstances change you could be screwed. Your life today with low interest rates (they are on the rise), good health and job security can change in an instant. I know this first hand and I’ve also seen others pushed to the brink when their stack of cards also collapses. So, pare back your wish list for your “forever home”. Whoever coined that stupid phrase anyway? It should be the “suits my purposes for now home”.

So, I’m sorry I couldn’t give you tips telling you if you cut back on one flat white a week and your mortgage will reduce by half. Our level of debt is well beyond that and taking a long hard look at what home you have bought and why is going to save you more money in the long run.

And if I was starting out again in this market I know what I would do.

I would take my transferable work skills and my transferable family to a town where I could find the smallest and most cost effective house I could. After I paid for that, and only if required, I might consider then moving ‘up’. Then I would enjoy, explore and embrace this new community I found myself in and put my time and energy into that instead of massive debt repayments.

Happy Saving!

Ruth

 

Monopoly house

Homework:

Go and play Monopoly. Remember how one player always stuck with the tried and true Stafford St for $100 and someone always maxed themselves out to buy Queen Street for $400? They were the ones sat across from you sweating and panicking and hoping that you landed on them and paid them rent or they landed on free parking so they could have a rest. Sound familiar?

 

The Happy Saver podcast recommendations

Podcast:

I was listening to this when I had this blog mostly written and it was so appropriate that I’m telling you this is compulsory listening. I thought of so many different people I know with different circumstances that this could apply to. I hope you get something out of it too:

www.radicalpersonalfinance.com/young-couple-savings-rate

Smartshares Part 3

Smartshares Part 3

Bonus Bonds - The End!

Bonus Bonds - The End!