Don’t sit on a mort­gage

Kapi-Mana News - - FRONT PAGE - ROB STOCK MONEY MAT­TERS rob.stock@fair­fax­me­

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

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