Don’t sit on a mortgage
The internet is awash with calculators that give you insights into aspects of your life.
For the morbid, there are calculators that estimate the date of a person’s death.
For the sleepyheads, you can estimate how much time each of us spends snoozing.
For the puerile, calculators will work out how many days people spend sitting on the toilet.
All have their place, I guess, but none deserve praise like mortgage calculators, which show how much of your future wealth lazy mortgage management flushes away.
Mortgage calculators lay bare the money-sucking power of debt, clearly indicating why Australian bank shareholders have grown so wealthy. But no clearer device exists to help plot debt escape plans.
A mortgage is virtually unavoidable in a successful, self-
made money life, so it is worth understanding.
It’s been easy to be lazy about the mortgage as house prices rose, but playing with a mortgage calculator can change laziness into debt-busting action.
I don’t know about you, but my list of life missions never included making bank shareholders rich.
Plug in the amount you owe, the interest rate, and the term of the loan, and an online mortgage calculator will tell you the amount of amount of your future income the bank will get from you.
Say you owe $500,000 (a debt people aged 50 or more never had to shoulder to do something as ordinary as buying a house). And say you believed the average interest over the lifetime of the mortgage would be 6 per cent (a bit low, I reckon), then you will transfer $579,190 of your future income to a bank.
The awesome thing about mortgage calculators though is that you can work out the value of making extra payments now.
Stick in an extra $50 a month, and, in the above case, the amount of interest the bank will get drops by $30,000. And the borrower would say goodbye to the bank a year and two months sooner.
Makes you want to pay $100 extra a month, or $200, doesn’t it?
Mortgage calculators make plain the wages of frugality.
These days I only used mortgage calculators for work, and my favourite is an American one, partly because it provides a tragic reminder of what sane property prices look like. When I last popped on the suggested ‘‘home price’’ was just $362,500.
In the US, that’s a nice home. In Auckland it’s a festering rattrap so squalid the SPCA would pop round with very stern faces if you tried to house a dog there.
Second, the ‘‘suggested’’ interest rate is currently around 4 per cent. But if you are splitting your home loan between floating and fixed, the Westpac mortgage calculator might be more helpful.
Newer homeowners have to be awake to their mortgages in the way previous generations didn’t.
Big mortgages, ageist employers, insecure work, and the threat of jobs being automated away or shifted overseas, all make getting a debt-free home a priority as early as possible. As Prime Minister Bill English settles into his new job, there’s an elephant waiting in his in-tray: namely, the rising cost of national superannuation.
For understandable reasons, politicians of all stripes tend to be gun-shy about tackling this particular issue.
The elderly tend to vote in disproportionately high numbers, so messing with their entitlements will tend to be punished at the ballot box.
Moreover, any such meddling would be likely to send more and more elderly voters into the arms of New Zealand First.
Reality however, can be avoided for only so long. Superannuation already dominates welfare spending and costs taxpayers roughly $11 billion a year to support.
Given its ageing population, New Zealand is looking down the barrel of an annual state pension bill three times that size in the coming decades, if current entitlements are left untouched.
In 2009, English ensured that the country’s obligations to the elderly will be even less affordable in future by suspending the government’s contributions to the Cullen superannuation fund.
Even though Treasury is predicting bulging surpluses out until 2021, the Cullen Fund payments will reportedly not resume until the end of that forecast period.
Tax cuts and infrastructure spending are being treated as a bigger - and politically more rewarding - priority.
Other countries are facing the same problem of the long term affordability of pensions. A few are making the hard calls a lot sooner than we are.
In Australia for instance, it has been flagged well in advance that the age of pension entitlement will rise from 65 to 67 by 2023, and to 70 years of age by 2035.
Asset testing for eligibility to pensions has been part of the