Monday, 10 October 2011

Plan Your Mortgage


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 thinkHowever, 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We are busymanaging our debt andbuying stuff that will break or be out-of-date in a year.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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