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First and foremost if you’ve arrived at this post looking for a good home loan repayment calculator to tell you how many years it’ll take to pay off a $400,000 loan at some specific amount per week/fortnight/month then I’d happily recommend this one right here. Before you go though I hope you do read on below to discover some interesting facts about how the average Australian family goes about paying off their home loan (and how they’re also wasting hundreds of thousands of dollars doing it).
How Long Does It Take The Average Australian To Pay Off Their Mortgage?
It turns out this is a pretty wide and varying question to answer as depending on your circumstances it might take you 5 years or 50. You might have 8 children or none. You might have 2 children and be a single mother or father. You might decide never to have children or you might just live on your own for the entire time you have a mortgage. Given I can’t cover EVERY person’s unique circumstances I’m today going to focus on just two of what I think are the major ones. A couple without children (the “Couple’s” case) and a couple with children (the “Family’s” case).
Searching through the trusty Australian Bureau of Statistics website I came across these statistics taken from May 2012, granted not the most up to date figures but I somehow doubt Australian’s habits have changed greatly since two years ago so they will do. I’ve taken the figures in their table 10.22 and put them into a more readable and nice format for each of the two main cases.
In the real world there are renters, homeowners and “other cases” so I’ve adjusted the figures in the ABS’s table to only consider people with or without a mortgage. In 2011, slightly more than a third (35%) of dwellings were owned with a mortgage, 33% were owned outright, and 29% were rented [source]. So when you read the above graph that says “96.5% of Couple’s under 35’s have a mortgage” remember that that’s 96.5% of people who are homeowners, not all Australians. With that caveat out of the way we can continue to conclude some interesting facts .
As you’d expect, in both cases over time people gradually move from having a house with a mortgage to paying it down and then finally fully owning their homes. Interestingly it seems that if you have children and a mortgage now, there’s a 53.7% chance that you’ll STILL have a mortgage by the time you’re 65 and supposed to be retired. This could be due to those people owning their PPoR but still having a mortgage on a second house that they’re renting out as an investment. Australian’s do so love their negative gearing!
The main point to see though is the trending line that shows Australian’s generally take their whole adult lives to become mortgage free. With 96.5% of Couple’s under 35 having a mortgage and it taking until they’re “over 65” for an equivalent (92%) amount to be mortgage free this is most likely due to the constant life inflation people have buying bigger and fancier houses over time, never quite paying it all off and always being in debt. Also interesting is that if you can manage to pay off your mortgage BEFORE you’re 35 (regardless of what household type you are) then you’re one of only roughly 48,500 households that accomplishes this fantastic goal. That’s only 0.58% of households in Australia so you’re truly “the 1%” .
Unfortunately as the graphs show, this tendency to take 30+ years to fully pay off a home loan means that virtually all Australians are paying huge amounts of interest every year. Now although a household might pay off their mortgage (or come close to it) and then upgrade their house to a bigger one with a new mortgage doesn’t mean that they’re not at any point paying interest. Whilst it’s clear that most people see a mortgage as something “that you’ll be paying off for the rest of your life” it really doesn’t have to be this way.
Fight The Death Pledge!
Paying off your house certainly doesn’t have to take 30 years (or more) of your life. I’d always suggest taking out a mortgage for that length because it enables you to have the most flexibility in what you pay each fortnight/week/month, but you should by no means be paying “the minimum” that the bank tells you to pay. Now you might be saying right now that you don’t pay the minimum and that’s good but what ARE you paying? 10% more? 20% more? 100% more? Judging by more ABS stats they report that in 2011, the average Australian household with a mortgage paid $1800 a month in mortgage repayments [source]. Similarly, in June 2011, the average amount borrowed by FHBs with a mortgage was $275,000 (in 2009-10 dollars), while the average amount borrowed by non-first home buyers with a mortgage was $305,000 (in 2009-10 dollars) [source].
So we have $275,000 – $305,000 home loans with people paying around $1,800/month. We’ll round that loan off to $300,000 and also assume a 5% interest rate, which means the minimum payment would be $1,777 for a 30 year loan. So it seems your “average Australian” with a mortgage is very likely paying the bare, bare minimum they can on their mortgage which would explain why it takes 30+ years in the graphs above for the majority of people to move into the paying off their mortgage section. Very sad that they’ll happily throw away over $340,000 in interest just because they don’t know how to steer their ship properly. Also before there are any flaming commenters shouting out at me saying that maybe they “can’t afford it” the ABS also notes that the “average housing costs as a proportion of gross household income for owners with a mortgage is 18.1%” [source]. So they’re not even breaching the mythical “30% of wages to mortgage” range which is supposed to put financial pressure on people. No, they can do much, much better.
For you though, let’s just speculate that you’re FAR better than the average Australian person. Let’s assume you’ve got the same mortgage but are paying 50% more or $2,700/month. Your loan length should be at around the 12.5 year mark now so far, far better but this is Mutilate The Mortgage after all. Holding a loan for over 10 years is just unacceptable and there is certainly more fighting to be done. Here we aim for 70%+ of our household income to be thrown at the mortgage for maximum mutilation. If our average Australian followed this mantra their payments would shoot up to $7,000/month (or 388%!) and the term of their modern day slavery would be reduce to just 4 years. That probably sounds ridiculous or “extreme” if you’re new here but seasoned MTM readers will know that this is indeed very possible and in fact the norm around here. You can scoff and protest as much as you want but it IS achievable if you make it a priority. In fact I can confirm that our household is proudly above that 70% rate just to once and for all prove that it is indeed possible.
If you are new, grab a copy of The Mortgage Planning Spreadsheet and start reading up on how it’s all done. There’s no magic pill or “trick”, it’s just proper and consistent work which results in near 100% success rates unlike most other get rich schemes that rely on “housing booms” or greater fools to make them work. If however you’re part of the 0.58% of Australians who has already paid off their mortgage before they’re 35, tell us all what your best bit of advice is in the comments below.