The era of home loan ‘slavery’

OPINION: I like to be as free as I can be. It’s a cornerstone of my happiness.

Like many people, I am bound by chains of my own choosing – family, vocation, country, city – but one thing I refused to be bound by for any longer than absolutely necessary is debt.

A Catholic nun recently told MPs that ‘‘debt is the slavery of the free’’. It perfectly encapsulated my attitude towards it.

Priority number one for me when I had a home loan in my younger years was to keep my This kind of thinking gets no airtime whatsoever in a first home affordability crisis.

When prices are skyrocketing home loan priority number one for young people is just to get a home loan, and to worry about managing it later.

I’m old enough (having turned 50 a few weeks ago) to remember when the standard 25-year term became 30 years in response to ever-rising house prices, and I remain appalled that it happened.

GOLDEN RULES

■ Think critically about debt

■ Accept nobody’s definition of normal or standard

■ Develop your financial freedom strategy

Bigger loans mean longer loans, which is one of the reasons why more people are projected to reach the age of 65 without having paid off their home loan.

I see this as a loss of human freedom, and an addition of risk to people’s lives.

Covid contributed to this loss of freedom too. Some people had to defer their home loan repayments, and when they started again, some did deals to lengthen the term of their mortgage by several months.

Many people do strive to be debt-free. Some engage financial fitness trainers like EnableMe to help clear their mortgages. Some get a mortgage broker to help, or even their bank, which will help, if asked. Others go down the DIY route, and ration their spending, so they can spend more of their income paying off their home loan.

A friend asked me this week about which fixed-term mortgage rate from his bank was best.

‘‘I never tried to forecast interest rates, even when I had a mortgage,’’ I emailed him.

‘‘My motto was ‘It’s not the rate you pay, it’s the rate at which you repay at that matters’.’’

We kept it super simple in my household. We always had some on one-year fixed, some of twoyear, and a portion on revolving credit. That revolving credit portion was the amount of capital we thought we could pay off during the year on top of the standard repayments for the oneand two-year money.

At the end of each year, we’d reset. Each year the aim was to shave months, and if we could years, off the loan’s duration.

Behind the strategy was the guiding principle of ending our debt slavery as soon as we could.

Home loans are bigger now, but the principle is still valid.

I gave my friend an example using the BNZ online home loan repayment calculator.

Repay a $400,000 home loan on the bank’s normal 30-year schedule at a two-year fixed interest rate of 3.29 per cent, and you’d be paying $805 a fortnight.

But repay $20 extra each week, finding household economies, and two years and four months is wiped off the term of the mortgage.

Make it $30 extra a week, and the gain in freedom years is three years and four months.

I can think of no better personal use for money than buying freedom.

CALL TO ACTION

Got a question for Rob or an issue you want him to tackle? Contact Rob by going online to Neighbourly and type the name of our newspaper into the search bar.

Click our name and select Contact from the menu bar and ‘‘message our reporter’’ from the drop-down menu.

Owning a home comes with a considerable price tag these days, and part of the price is the loss of freedom.