Interest rates are LOW so pay off your mortgage!

Interest rates are LOW so pay off your mortgage!

When they dropped interest rates a couple of weeks back was your first thought:

A. Money is cheap, I might go get a mortgage or add to my existing mortgage? OR

B. This is an opportunity to pay down debt and reduce or clear my mortgage?

My first thought was definitely B.

Apparently, the government is trying to stimulate the economy by making lending cheap and encouraging us to go out and spend. But although I want a strong country and economy, it’s not my job to prop it up by buying an overpriced house, new cars or a new sofa. Instead, I think that now is the perfect time to show that I’m actually an adult who can make good decisions and make the most of the opportunity that I’ve been given to rid myself of mortgage debt as soon as humanly possible. I actually think I’m a much more useful member of society by having no debt.

My friend Bradie and her husband Paul #kiwigirlonabudget were on TV recently and they were given a two-minute opportunity to explain how and why they chose to rid themselves of $566,000 of debt. She did this admirably in the short time she had by reminding us:

  • Don’t keep up with the Joneses - don’t care what others think

  • Keep a tight budget

  • Get on the same page as your spouse

  • Live on less than you make and slash your expenses

  • Sell what you can

  • Drive a cheap car

  • Pay off ALL debt and vow to take on no more

This may hopefully have fired up someone who was watching and made them think “maybe I could actually live without debt”? I really do hope so. But unfortunately, some of their good work was undone when the presenter wrapped up the segment and said something along the lines of “debt is cheap and with interest rates so low now is a good time to have debt”.

I groaned.

I actually groaned.

I speak with people and email people all day long about how money impacts their lives and each of them (myself included up until a point), learned our education around money from banks and lending institutions marketing to us. We are also influenced by what we see on TV when well-known presenters offer their opinions. So, unfortunately, it came as no surprise to me that when I watched the episode back online I realised that Seven Sharp is sponsored by the ASB bank.

So, here we had what was touted as a huge achievement for this couple, paying off a huge amount of debt, being undone by what I think was a subtle advertisement by the presenter to actually go and get yourself some.

I had to shake my head.

Heck, I listened to a podcast the other day where the interviewee said that you should aim to own your own home because “If you are renting you are just paying someone else's mortgage”. My immediate thought on this was that this person’s assumption was that NO ONE owns their own property, the bank always has a stake in it. The casual way he stated this “fact” just cements the narrative we have in our heads that debt is normal and that we ALL have debt.

And it’s this assumption I’m always trying to challenge. Are we not yet all completely sick of handing out money to pay a mortgage each month? Year after year after year. After year!

It seems that no one is encouraged to actually OWN what they have, you might eventually own it but, hey what’s the rush, take your time! Would you like to borrow some MORE money? We have been hearing a one-sided advertisement for so long that we are all just complacent with having a mortgage; it’s normal, it’s just what we do. Please don’t kid yourself that there is good debt and bad debt, it’s all just money you owe to someone else. End of story.

But from where I’m sitting, I’ve noticed that those that get ahead financially and live more of a stress-free life actually own the things they have. And they buy the things they need with cash they have saved up.

Just writing this down brings back the feelings I was having between 2002 and 2007 when Jonny and I were so ANNOYED at paying so much interest (~9%) on our mortgage each and every month. This made us buckle down and pay our house off as fast as we possibly could; it took us five years. And when we were done our bank tried REALLY REALLY hard to get us to borrow more money. Even without the financial knowledge that I have today I still thought to myself “this is just so completely wrong”!

At the beginning of August when I heard that interest rates had dropped, I may have JOKED that even I want to go and borrow money, but what I really thought was “oh my god, if I had debt right now I would be absolutely moving heaven and earth to kill it off forever”. I would be thinking that this was my golden opportunity to get my bank out of my life and to actually own the house I’m living in.

So, I’m encouraging YOU to do the same.

Get annoyed, get angry and get after your mortgage. Forget the mathematical complicated conversations of “my money is better to be invested at a higher rate elsewhere”. People say this, but they rarely do this and all the while they chip away far too slowly at their debt. When you borrow someone else's money you are letting risk enter your life and you want to reduce or eliminate as much risk as you can. Going back to what Bradie talks about, don’t get hung up on other people and what they might be doing; such as the high house prices and debt levels in Auckland. Remember that not everyone is a first home buyer that we constantly hear about (and for good reason too, they are doing it tough), in fact the average size of a mortgage for a non first home buyer is $215,000, so don’t let those high numbers you hear bandied about on telly lull you into a sense of complacency and make you think “oh, my mortgage is so much lower so its’ fine to just let it take the time it takes to pay it off”.

What does increasing your payments look like?

The Happy Saver Calculator

I had a play around with the following calculators and you should too:

Mortgage Calculators

www.sorted.org.nz/tools/mortgage-calculator

www.interest.co.nz/calculators/mortgage-calculator

  • What does increasing your weekly/fortnightly or monthly mortgage payment look like?

  • What does it do to the total amount of interest you will pay?

  • How many months or years earlier will you pay it off if you just pay attention to it and push more money at it?

  • If the interest rates increase, what does it do to the total you will pay?

I hear from many people who have the means to pay down a mortgage more quickly because they are on high incomes, they just don’t realise that it’s a good idea to do it! Why? Because their bank is certainly not telling them they should, instead they are more likely to be offered more debt to buy further property because they have built up some equity in their own home. If you have a good income coming in each month, push more of it towards your mortgage and actually own your own home outright while you are younger and earning the big bucks.

JUST DO IT!

I’m not a financial advisor so I’m not giving you financial advice, but take it from someone who got pissed off enough when interest rates were up around 9% to actually do something about it. Becoming debt-free was ONE OF THE BEST feelings I’ve ever had in my life. My life instantly became less complicated and Jonny and I received a huge pay rise each month because our income was now ours to keep. And HEY, if I’m wrong and getting rid of your mortgage was the worst mistake you ever made, well, walk into any branch of any bank and they will lend you a whole lot more money in a heartbeat.

We are in historically LOW-interest rate times, don’t use it as an excuse to borrow more “cheap money” instead, push as much towards your mortgage today, next week and next month as you possibly can to reduce the amount you will pay overall and lesson the time it takes you to become mortgage-free. In low-interest rate times, every single dollar you put towards your mortgage goes further because you are paying the bank less for borrowing their money.

Many people write to me who are on a mortgage payoff sprint and I applaud every single one of you. When my friends finally own their own home I send them a bottle of wine in celebration. Its a huge deal and it should be celebrated because I know that those who achieve it have really focussed on making it happen. You should too.

Happy Saving!

Ruth

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