August 13, 2018
celebrate a birthday that has a zero at the end of it, people reassure you ‘it’s the new 30!’. 40, 50, 60 – they’re all the new 30.
But I believe 10 is the new 30 - when it comes to your mortgage, that is!
Too often borrowers default to the standard duration of 30 years, and in the absence of some sound financial advice, they trundle along never making much more progress than that.
But over 30 years you will pay almost three times what you borrowed back to the bank.
So,if you borrow $400,000, you’ll pay back close to $1.1 million (using long term average rates). The interest rate discount you negotiate starts to pale into insignificance in the context of such large numbers! Not only that, but you pay the bank back first. In my first mortgage I worked out it would be 23 years before I started paying more principal than interest each month – but I wanted something different.
One of the problems is we don’t have a good gauge for what we should be aiming for - what’s a reasonable time frame to pay off a mortgage?
You might scoff and think being 10 years away from being mortgage-free is impossible, but first consider the time frames we aim for with our clients. If you have debt that is four times your household income, you should be able to pay your mortgage off in 8 years. If that debt is five times your household income, you should aim for 11-12 years. If that ratio is more like 1 to 8 or 9, you’ve overstretched and it’s time to sell.
In my experience as a financial advisor, there’s always more fat in people’s budgets than they realise. On average, people fritter 15% of their income on things that don’t make them any happier or, worse - they can’t account for where it went! You’d also be surprised at the savings our financial advisors make from setting you up with more efficient mortgage set ups, tax structures and insurances.
10 absolutely is the new 30 and having a plan to make that your reality will jump start you on the road to financial success.