When new home owners move into their first home there are celebrations all round, parties and the inevitable walking around nude just because you can. Big banks picture you as the bright eyed and gorgeous couple they show in their ads just begging to start your new miracle life in a house financed by them. You fill the house full of thing (or “memories” as some like to call it) then further add to everything with new things to fill all the empty spaces and rooms that are now yours. Tables, beds, desks, fridges and so forth. Nothing is safe from you purchasing power! After a month or three though you settle in and begin to feel at home.
The mortgage payments don’t stop though do they?
What if you’ve been in your house for a while now and aren’t sure exactly how much you should you be really paying towards your mortgage? I mean, the bank says you have a minimal repayment of $2,000 per month… maybe you should be good and pay $2,500 a month! That will totally help and give you that nice, warm fuzzy feeling inside that you’re doing good won’t it?
I once talked to a young man (27) who had just bought his first plot of land with the intent on building their home on it very soon. All up the land plus housing costs he estimated would be $200,000 (land) + $150,000 (house) = $350,000. After some poking and prodding about what he really wanted long term he answered one of my questions regarding what his dream outcome would be with:
That with the wife’s second income, they could clear out the mortgage in 10 years
10 years. $350,000 in 10 years. “No first home owners can pay off that kind of a loan in 10 years!” you might say… well with the numbers I showed him, he could. Furthermore? He could do it on just his salary alone, no wife needed! The secret? Well I hate to tell you but its called discipline.
After talking to a number of people so far I’ve found that it is often not their income, the loan size or even whether or not they have kids that stops them from paying off their mortgage. It’s the individual. It is their mindset and their discipline level. So stop being a complainypants and enjoy as I shower you in awesome advice.
My first piece of awesome advice is to…
Tracking your progress is one of the most useful thing you can do as without it, you’ll likely run out of motivation and just stop trying to mutilate your mortgage. What do I mean when I say tracking? Well it doesn’t have to be anything complex, in fact I’d encourage you to make sure it isn’t complex and will take up as little time as possible. This will ensure that you focus more on the results than wasting time fiddling with some program. Too often people get hung up on the tool when it is the man or woman that is the real reason one person or another succeeds. Tools can be important, but they are useless if you never actually do any work.
Update: I’ve now released The Mortgage Planning Spreadsheet so you don’t have to create your own!
As you can see, the above spreadsheet simply states the date, your loan amount, the interest rate and the size of your payment. Now this is done each fortnight in this example but if you are better suited to monthly or weekly (usually due to how often you get paid) that’s fine too.
When you track your mortgage it keeps it in focus. When a new home owner crashes into their glorious new digs they are often so excited that everything else falls to the side lines. Parties are planned and executed, Facebook posts are pushed out and photos are taken from every angle not to mention the cleaning. Now that’s all fine and OK, you’ve just made likely one of the biggest purchases of your life and it’s understandable that you’d like to celebrate but what happens after those parties is many simply go back onto auto pilot. They pay the bare minimum repayments. They forget about their immense debt and just stay busy with work, going out, dinners and TV. Oh how we just adore our TV (just in case you can’t hear the sarcasm through the Interwebs I 110% agree with ERE that TV is evil!). Now when you forget about something it often ends up bad and it’s what large amounts of businesses count on. Forgot about that credit card of yours? Oh, that’ll be 27% interest on the balance thanks… Forgot about that car service? Oh, well now your engine is out of oil and needs to be replaced. Now, at this point someone might say…
Don’t be stupid Mortgage Mutilator… no one would let their engine run entirely out of oil!
And I’d reply with… So why do we leave our mortgages on auto pilot for YEARS then!??
How much does an engine cost? Maybe a few thousand dollars to replace? Heck, let’s say $10,000 even! Well compare that now to the cost of forgetting to service or pay any attention to your mortgage…
Yup, on a $300,000 loan (which is quite a bit less than normal these days) not paying any attention and just paying the standard “30 year loan term” payments of $1,011.65 vs doing something about mutilating your mortgage costs you over $276,000 worth of interest. And yet ask around amongst your friends “Hey Bill, do you keep a close eye on your mortgage?” and you’ll no doubt just get blank or confused stares.
Due to Recency Bias we focus too much of our energy on the things we can see in everyday life. The coffee we should really not be buying… the bagged lunch we should have brought or that expensive dinner last Friday night with friends. These are immediate and apparent monetary expenses to us but our mortgage… our mortgage is just abstract. It is just some numbers on a bank account website. Well tracking will help you focus on that number, focus on it with the attention that it deserves because it is no doubt a HUGE fucking number and it will not go away quickly unless you do something about it.
So now that you know just how important it is to pay attention to your mortgage, I have a few tasks for you. Now it might sound odd to some for a blog post to tell you to go and do something instead of just yapping on but this is meant to enact change in others’ lives. Reading a thrilling piece about how dumb most people are to just ignore that insane pile of debt that towers over them day and night is all good and fine… until you go and become that dumb person too! So don’t just sit there with your guiltily bought $4.60 coffee sipping away calmly… you have a shit tone of debt to mutilate! These tasks might seem rather counter intuitive but trust me for now and simply try it as tracking your mortgage is the linchpin to mutilating your mortgage..
When we track something we pay more attention to it.
When we pay more attention, we optimize.
When we optimize, we win.
1. Login to your mortgage account website and fill out a spreadsheet with at least 6 month’s worth of historic payments. [30 minutes]
2. Each repayment, update that spreadsheet with the new figures. [3 minutes]
Next up, I will be talking about how this spreadsheet will be used to further encourage you to mutilate your mortgage along with some of the best ways to do it.