Throughout the years of relentlessly cutting down our mortgage I’ve explained the process to many people. Over that same time I’ve heard many number of reasons why other people couldn’t or wouldn’t do it. Most of them revolve around a few common themes so I thought I’d lay them out here under that great heading. To be clear, when you’re a full time worker who has a mortgage and you say “I can’t mutilate the mortgage” you’re really explaining to me why you’d just LOVE to waste hundreds of thousands of your very hard (and heavily taxed) dollars. As I’ve shown before, the amount of money someone paying off their mortgage in 6 vs 30 years can save is a staggering amount (roughly $350,268 in interest for a $300,000 loan at 7%) and to me it’s just a huge waste to see people not really focussing on paying off their mortgage.
Many people don’t work full time or don’t have particularly high paying jobs as they’re just starting out. This is a quite reasonable excuse for not mutilating the mortgage. However I try and target this website towards the “20-35 year old age bracket that live in Australia and who have just bought their first home (or are new to mortgages). They will have a mortgage (likely $350,000+) and they should have the desire to get rid of it.” So if you fit that bill and don’t have any super serious issues (massive medical bills, $100,000 in credit card debt etc) then as far as I’m concerned, the smartest thing for you to do is to mutilate that mortgage.
So here are some of the most common reasons people use to explain why they just LOVE to flush hundreds of thousands of dollars down the drain:
“I don’t make $XX,XXX so that won’t work for me”
Even with a single household income of $80,000 you can pay off a $300,000 loan quite quickly. The truth of the matter is that when people respond in this way it’s not normally that they don’t have enough money to mutilate their mortgage, it’s that they either don’t know WHERE their money is going or that they quite likely can’t be bothered even considering the option. If they did do the maths, chances are very high that they’d be able to blow away a $300,000 mortgage in under 10 years (especially if there’s a dual income house).
If you find yourself saying this question I would simply suggest trying the maths out. Pick one of the Use Cases that is similar to your situation or try The Mortgage Planning Spreadsheet out for a specific answer. You don’t have to change anything yet… just do the maths and see if it really WILL work for you on $XX,XXX or not.
“Our mortgage is MUCH higher than $300,000 so that won’t work for me”
In this scenario you may actually be right in that you won’t be able to Mutilate the Mortgage in 6-7 years. However it doesn’t matter as it’s clear you have an even BIGGER problem of a stupendously high mortgage. As it’s a higher loan amount all this means is that you will save even more by paying it off quicker!
Also saying “I can’t do X because I’m in more debt” is like a gambler betting even more because he’s lost the last 10 rounds. It’s just going to end up even worse if you bury your head further into the sand. Sure, you might not be able to crush that debt in 6 years, but you know what? If your loan is $500,000 or perhaps even more, there’s a fair chance you’re on a higher salary which means you have an advantage others likely do not. And so what if you “only” pay it off in 9 years instead of 6? That will still save you $384,977 worth of interest so get started already!
“Putting that much towards the mortgage won’t leave anything for entertainment / travel / gadgets / random spending / etc”
There are two possible ways to answer this objection. One is by arguing that paying off a mortgage super fast actually gives you MORE money to put towards these things (in the form of interest you would otherwise pay the bank) and the other is to simply say that you need to reconcile what your objectives in life are.
If your main goal is to travel everywhere as much as possible then alter your life to make travel the main priority. In this scenario having a mortgage might not be the best way to handle things. In the regards of most people though their goals are normally close to Maslow’s Hierarchy Of Needs. These are things like having food, shelter, water, stability, safety, friendship, WiFi and so on. Nowhere does it say “PS3” or “Trip to Europe” in it so to me at least this means most people should be structuring their lives around the best way to get food, shelter, water, stability…
The best way to do this is to have a stable and secure financial base as so much of these “needs” are purchased with money. Sure, you might have a bit less fun Mutilating The Mortgage however you will satisfy many of the core needs by doing so. Is that new iPhone really worth having a financial base that’s not very stable? Again this is about orientating your life to align with what YOU truly want and need. I’d argue people need a secure and stable life more than Foxtel.
“That might be possible for you, but we have X kid/s”
Whilst I’ve already debunked the myth that Mutilating The Mortgage isn’t possible when you have a child the main answer to this is that you should still do the best you can. I challenge you to aim for a 70% savings rate and to be quite honest, we didn’t hit that figure last financial year. There’s my HECS that I’m still paying off and DW’s car lease that are sucking away precious money that could otherwise be going into paying off our mortgage. But you know what? We’re almost at that 70% mark and we’ll be pushing RIGHT past it this year for sure as the car lease goes away. Then the year after we’ll be pushing past 75% as well as my HECS is cleaned up. My ultimate goal is to see just how high we can go – I’d love to hit 80%!
Just because you can’t get to the 70% target doesn’t mean you shouldn’t try at all. So what if you have 43 children and only one arm? Aim for 70% and see what happens, just don’t be too concerned if you don’t hit the goal. You’ll still likely be doing FAR better off than anyone else in a similar situation plus you’ll be slowly making your life better. That being said though, even if you have children they are only as expensive as you make them (beyond a very base minimum amount). If you have a habit of buying fancy $7 coffee’s every morning guess what habit they’re going to pick up (and I DO see 10 year olds with cups of bought coffee going to school sometimes)?
“I’d rather live life NOW than save everything until I’m too old to use it”
I find this reaction quite ridiculous as it’s wrong on multiple levels. First off people who react with this statement often don’t fully understand JUST how quickly one can pay off their mortgage if they put their mind to it. If you buy your house at 25 and are on a dual $70,000 wage (average but still a decent amount) you could be all done by the time you’re 31 years old. Hardly what most would consider “old”, especially from the decrepit, can’t “use money” sense. Secondly few know of life expectancies and how long they are likely to live for these days. In the 1950’s your average lifespan was around 60-65… now it’s more like 80-90 depending if you’re a man or woman (women live longer on average). And that’s just the average! My mother’s mother passed away just recently almost at age 90. That’s almost an extra 30 years on top of the average meaning I shouldn’t have too much of an issue living to over 110 years old.
Along with this is the fact that the various stages of age and decrepitness are drawn out too. My parents are in their 60’s now and still go skiing quite often, that to me sends a message that I should be able to “enjoy using my money” well into my 70’s or even possibly 80’s before things start to go downhill. Who knows, hopefully I’ll still be lifting weights, playing volleyball or doing whatever when I hit 100. The point is that we all have a VERY long time to enjoy our savings regardless of whether we spend it in our 20’s or 80’s. So why waste money today that we could in turn spend tomorrow?
“I could totally just eat chocolate for dinner ALL the time”
If this is your reason then you’re likely my DW