What if you could
pay off your 30 year mortgage in 25 years or 20 years or 15 years or even 10?
Everyone wants to
be debt-free; it is the time frame that makes it so challenging and difficult.
It’s easier than you think. However, most people won’t achieve it
because they fail to set goals or take action.
Most of us end up
working for our mortgage.
We are busymanaging our debt andbuying
stuff that will break or be out-of-date in a year.
The easiest your
mortgage will ever look is just before you buy.
Once you move in
with your mortgage, reality sets in fast.
The budget you did (as you planned new paint colours
and new furnishings + the new 50 inch TV) begins to look extremely optimistic!
Banks want you to
repay your mortgage andthink that they can figure out how much you can really
afford. They do not know what you have planned for after taking on the
mortgage.
Budgetingneed not
be difficult. A simple short cut is to look at your rent and savings.
For example, $500 per week in rent and $1,000 per
month in savings is equivalent to the repayments on a mortgage of $430,000 at
an interest rate of 7.50%.
When you apply for finance the process is backward
looking. The focus is on demonstrating that you can pay the mortgage. Looking
backward however ignores the traps that can lie ahead.
Think of the new paint + furnishings+TV + new car
that you had thought of but never put down in your budget.
However if you plan ahead, this can be incorporated
into your mortgage planning.
At Mortgage
Mantra we do that by sitting with you and looking at how quickly we can reduce
the mortgage to a point where you can afford it on one income.
OR
Wecan help you
build a savings buffer you can use. If you can plan that into your mortgage
from the start then it becomes easy.
The other option
would be to only borrow what you can afford on one income, but how realistic is
that? In Auckland the borrowing power of one income will get you somethingin a
“socially challenging” part of town.
No matter what
your circumstances, or what you’re planning on doing, the mortgage is always
the elephant in the room.
One
simple rule that will get you ahead is to pay a bit extra, even if that is only
$50 per week. On a $400,000 mortgage paying an extra $50 per week will drop 4
years off your mortgage and save you $79,000 in interest.
Even better, you
can hammer your mortgage by feeding it half of any future salary
increases. Wage inflation is typically running at about 3 %(?????)And
your income tends to increase faster than this with age and experience. This
approach is painless because you haven’t had a chance to spend it yet!If every
year you give up 50% of any wage increase to the mortgage you will take approximately
8 years off your mortgage.
So almost all homeowners can pay off their mortgage
in less than 15 years, it just requires a bit of planning and action. It does
not require a magician who will charge you thousands of dollars.
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