When you celebrate a birthday that includes a round number and you feel a little anxious about it, people reassure you: ‘It’s the new 30!’. 40, 50, even 60 – they’re all the new 30.
But I believe 10 is the new 30 … when it comes to your mortgage, at least.
Too often, borrowers default to the standard duration of 30 years and, despite the best of intentions, never make much more progress than that.
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There’s only one party that benefits from that: the bank. Because over 30 years, you will repay almost three times what you borrowed. So, if you borrow $400,000, you’ll repay close to $1.2 million.
So whatever interest rate discount you manage to 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 that on a 30-year term it would be 23 years before I started paying more principal than interest – but I wanted something different. That’s why I worked with the University of Auckland to develop a calculus formula that determined the way to pay your mortgage off in the fastest time with the lowest interest cost and the most flexibility.
The formula works – but you need to have money left over to put against your mortgage and often even the highest-earning, most financially literate of people don’t have anything left over. That’s because the more you earn, the more you tend to spend – because you are too busy, because you can, because you don’t want to worry about money or because you don’t have a reason not to spend.
Before you think that a diet of financial deprivation is needed to get ahead - with no fun - remember, people fritter 15 per cent of their income on things that don’t make them any happier. Worse - they can’t even account for where it went.
Finding that fritter jumpstarts your mortgage progress. You’ll also be surprised at the savings you can make from more efficient mortgage set-ups, tax structures and insurances; I’d be surprised if your happiness took a hit from fixing that kind of stuff.
If you scoff at the idea of being mortgage-free in 10 years, first compare your circumstances to these ratios. If you have a debt that is four times your household income, we’d be expecting to get you mortgage-free in 8 years.
If that debt is five times your household income, we’d be aiming for 11-12 years. If that ratio is more like 1 to 8 or 9, you’ve probably stretched yourself a bit too far and we’d recommend selling. These ratios are by no means New Zealand averages – but average doesn’t equal progress.
Most people are capable of better than their current default. What they need to reach their capability is fairly simple: an ambitious plan, expert advice and someone to hold them accountable. It is possible to get ahead while living a life you actually enjoy.
Let enableMe help you make 10 your new 30 and jumpstart you on the road to financial success. Find tickets dates and locations for Hannah McQueen’s nationwide seminar tour ‘Get Mortgage Free and Retirement Ready in 10 years or Less’.
Hannah McQueen is an Authorised Financial Advisor, Chartered Accountant Fellow, Author, and founder of enableMe – Financial Personal Trainers.
