How to cut years off your mortgage
Former mortgage broker David Tillman could become banks’ public enemy No 1 and his new book the best friend of home owners with large mortgages, writes Richard Meadows.
CHASING after the lowest interest rates on your mortgage is a waste of time. Pick your jaw up off the floor. Breathe deeply into a paper bag. Ring your mother and tell her that everything is going to be OK.
It’s true that interest on mortgages is far and away the biggest cost, often blowing out to as much as two or three times the initial loan. But the near-hysterical obsession with tracking interest rates and flitting from bank to bank for the best deal confuses exactly why that is so.
The ‘‘interest-rate trap’’ is one of the ideas laid out in former mortgage broker David Tillman’s first book, Hammer That Mortgage! On the cover, Tillman clenches said hammer in hand. Perhaps, like an avenging Norse god of personal finance, he is poised to do battle with the banks, which, he assures us very early on, are ‘‘not your friend’’.
Something that frustrated him during his time as a mortgage broker, he says, were the ‘‘honeymoon’’ six-month rates dangled alluringly in front of aspiring home owners. The banks jostle fiercely to match rates, trumpeting reductions down to the last measly basis point. Lean in close for the sweetest deal, and get yoked with debt for 30 years.
There is a better way. Tillman stresses that the interest rate you are charged is not as important as the total interest you pay over the course of your mortgage.
Read that sentence again – they’re not the same thing.
Yes, finding a low rate can save you a whack of money. But unless you know what you’re doing, it might not work in your favour.
‘‘You’re going to be working hard for it, you’re going to be changing banks, you’re going to be hassling to negotiate,’’ Tillman says.
But interest rate savings pale into insignificance next to payment methods that actually get you debtfree faster.
It’s the difference between chipping tens of thousands off the mortgage, and hacking hundreds of thousands off.