HOW YOU CAN SAVE
Using basic graphs and real-life scenarios, Tillman demonstrates that the effects of increasing repayments – even by small margins – are absolutely staggering.
One of his catchiest ideas is the ‘‘latte mortgage’’, based on forgoing your daily $4.50 caffeine fix (or equivalent vice) and contributing the money towards the debt.
Using a standard $300,000 mortgage with a 30-year term, the latte mortgage will save more than $100,000 in interest, and cut six years off the repayment time.
Those numbers often leave people dumbstruck – ‘‘it takes a little bit of getting their head around’’, Tillman says.
In a similar vein, here’s another great reason to quit smoking: the price of a daily pack of ciggies would save more than $240,000 in interest, and take a whopping 13 years off the term.
If you’re a nervous wreck without a long black and a cigarette in hand, there’s more than one way to skin a cat. Take the ‘‘bulletproof mortgage’’, for example, an idea which Tillman is amazed never seen elsewhere.
Calculate repayments at 10 per cent interest, then maintain it at that rate even while you’re only paying an average of 8 per cent. The rest comes straight off the principal. It’s a small difference, yet, in the scenario above, bulletproofing saves 12 long years of toil and a massive $228,000 in interest.
But will those interest rates stay politely parked between 6 per cent and 10 per cent?
‘‘You ask 10 economists, you get 10 different answers,’’ Tillman says with a laugh. ‘‘I think, realistically, they should sit in that band.’’
Even if they do break past 10 per cent, then you’re already used to paying that rate – and could increase it further if your budget allows.
Throughout the book, Tillman explains several other plans that cater to different levels of hands-on ability, financial nous and willpower.
The methods vary, but the theme is the same: pay above minimum repayments and get debt-free faster, with far less cash thrown away on interest.
The banks, quite naturally, don’t want you to do this. It’s in their best interests to drag out mortgages as long as possible, extracting the maximum amount of moolah from you along the way.
For example, when rates fall, your minimum payment automatically decreases. That’s despite the fact that you can still afford to pay the same amount, and would actually be far better off doing so.
Your bank is hardly going to tell you that, though.
Gto
have ETTING out of bed with the banks and becoming mortgage-free is a pretty good feeling, apparently, and Tillman should know.
In the foreword of his book, he promises to tell us how he paid off his own 25-year mortgage in five years, at a time when interest rates were over 20 per cent.
That paved the way for him to retire at 45, indulge his passions for gliding and travel, and get into property investment.
By the end, the reader knows that of course, there is no secret, just hard graft, thrift and clever repayment schemes.
Is Tillman’s success realistic for others? Perhaps not easily, he says. But 15 years is achievable, or even 10. He insists he’s no money whizz, and that’s got to be one of the best features about his book: it’s written with ordinary people in mind.
Sadly, the constantly confused characters that bumble their way through unintentionally amusing case studies are probably representative of many mortgage holders.
‘‘John’’, for example, doesn’t understand ‘‘all that mumbojumbo’’. He screws up his face, scratches his head, and umms and errrs more than David Shearer fielding a tricky policy question.
For those in John’s boat, the book will be something of a revelation. But it has a broader appeal: anyone with a mortgage, or looking to get one, stands to benefit.
With its talk throughout of budgeting, of cutting up credit cards, and delayed gratification, we’ve run into the Achilles heel of debt-loving New Zealanders.
Tillman is the kind of man who stoically endured friends callously mocking his 36-centimetre television set, happy in the knowledge that he would come out better off in the end.
He’s unconcerned about keeping up with the Joneses – but not all of us are imbued with the same prudence.
It’s got to be a generational thing, Tillman reckons. Our grandparents didn’t live within their means, they lived below them. Then the war finished, the economy boomed, and people started living for now.
‘‘Today we have a generation of kids who have grown up having everything they wanted on demand, and money hasn’t been too tight,’’ he says. ‘‘They haven’t learnt the lessons that their grandparents learnt. I think a little bit of reeducation is required.’’
Does he think the re-education is actually possible?
There’s a long pause. Then he says slowly, ‘‘Yes, I do, but I don’t think it will be easy.’’
available through Tillman’s website, www.mfree.co.nz, will be released on April 2.