GOLDEN RULES

North Harbour News - - YOUR LOCAL NEWS -

A heart­en­ing pic­ture of progress to­wards debt free­dom has emerged from West­pac.

It says two-thirds of its cus­tomers are ahead on their mort­gage pay­ments by three months or more.

Own­ing a house is a costly busi­ness, both in time and money, so pay­ing more than the min­i­mum the bank de­mands takes com­mit­ment.

Very few homes are as their own­ers would like them. There’s al­ways some­thing else to spend money on that would get it closer to per­fect, not to men­tion all the money you have to pour into them to keep them them main­tained.

Get­ting ahead on the mort­gage may mean mak­ing choices like putting off that new bath­room, or main­tain­ing a fru­gal life­style, even while the cap­i­tal gains ma­chine you call home is en­rich­ing you.

What West­pac found was that around the coun­try, those peo­ple ahead on their homes loans had paid be­tween $3319 (West Coast)

Con­sider em­u­lat­ing West­pac’s su­per re­pay­ers

Bal­ance life­style and mort­gage re­pay­ments

Set mort­gage goals

and $11,146 (Nel­son) more than they were con­trac­tu­ally obliged to.

Low in­ter­est rates and high em­ploy­ment have made the past 10 years a great time to get ahead on the mort­gage, though postearthquake in­surance premium rises have taken a big bite out of home­own­ers’ in­comes.

Av­er­ages are al­ways a bit mis­lead­ing.

In Nel­son, there will be peo­ple $30,000 ahead, and some only $3000 ahead.

I reckon $3000 a year isn’t bad over 10 years, while $300 a year isn’t what I’d call life-chang­ing.

Not only do each of us have to bat­tle temp­ta­tion to spend, but we also have to bat­tle our own na­tures.

Some of us are risk-averse, and draw im­mense sat­is­fac­tion and a sense of se­cu­rity from re­tir­ing our debt.

Oth­ers are more com­fort­able with car­ry­ing debt, or have dif­fer­ent plans for get­ting shot of the mort­gage, such as own­ing a rental with the ul­ti­mate aim (don’t tell the In­land Rev­enue) of sell­ing it, and go­ing debt free.

West­pac found many peo­ple were choos­ing to mix and match fixed home loans with float­ing ones.

The fixed loans gave them some cer­tainty of costs in the fu­ture, while their float­ing loans car­ried no penal­ties for pay­ing them off faster than the bank de­mands.

The thing about float­ing rate home loans – and es­pe­cially re­volv­ing credit home loans – is that they turn ev­ery spend­ing de­ci­sion into a de­ci­sion about the mort­gage.

Sud­denly the cost of that Ne­spresso Lat­tis­sima ma­chine is the $750 you pay Farm­ers as well as the $500 in­ter­est on car­ry­ing an ex­tra $750 on the mort­gage for the next 20 years, not to men­tion the cost of cof­fee cap­sules.

The same goes for ev­ery­thing from lit­tle Jane’s pi­ano lessons to up­grad­ing the car.

Roughly-speak­ing, an ex­tra dol­lar paid off the mort­gage to­day saves you 70 cents in in­ter­est over 20 years.

On its own, that 70 cents isn’t much, but $500 ex­tra paid off each year quickly adds up to a small for­tune.

So con­sider what your level of am­bi­tion is, and get go­ing.

123RF

Jet-pro­pel­ling your mort­gage pay­ments can build fam­ily fi­nan­cial re­silience.

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