Currently you might have a mortgage of say, $250,000. This mortgage, assuming you’ve done your homework and negotiated down to a good rate might be at something like 3.64%. That’s bonkers low as we’ve previously discussed before but news is starting to stir of a cash rate hike over the next few years and I thought I’d run some numbers just to see how it might affect things.
$250,000 loan @ 3.64% = $9,100 of interest p.a.
Assuming the rumours are correct and the RBA raises their rates eight times, each by 25 basis points that’s a 2% increase over say, 2 years. We now have the following case:
$250,000 loan @ 5.64% = $14,100 of interest p.a.
That’s means you’re paying $5,000 more in interest each year. That’s money you could use to go on a holiday… to say, Iceland… where you could fly in, hire a car and drive around the entire island for 9 days and see all the amazing things they have there. For $5,000. In fact, that’s what we did recently! It was one of the best places we’ve ever been to and I’d highly recommend it be on everyone’s travel list.
A quick video I made showing just some of the awesome things we got to see!
Furthermore this isn’t just a once off $5,000… you’d get this every year meaning you could either go on an amazing holiday every year or plow that $5k back into your principal payments and kill that mortgage even faster. Either way I think you’ll agree that giving more of your hard earned money to the bank isn’t a preferable scenario.
The Writing Is On The Wall
For years now we’ve been running on easy street with the cash rate set at an all time low of 1.5%. I think a lot of people are just used to this now but it needs repeating that this is an all time low! It literally has never, ever, in the full, complete history of Australia been THIS low!
Some people were speculating that the cash rate would go even lower but baring some huge crash (which can always happen mind you) it looks like instead rates will be slowly heading back upwards making it harder and harder for you to pay off that mortgage fast.
Maybe you’re already cramming everything you can to your automatic extra mortgage repayment, but if you’re not it’s time to sit up, pay attention and re-double your efforts as your time is now officially limited. Go through your expenses, take another lesson or two in negotiation and talk to your bank, look again at your priorities and where you’re allocating your money and see if those wants and needs are still really what you care about enough to permit their spending. Investigate creating extra sources of income that will help you add more money to your repayments each fortnight. Sprint!
It’s no secret that each year it seems to get harder and harder to hit that 70% savings rate. Health insurance has sky rocketed over the years, power and gas prices too. Rego and insurance costs continue their march upwards every year and given that housing rates are based off of your homes market value (I still don’t understand why this is…) and that housing values are still inflating to obscenely ridiculous levels, I think it’s safe to assume they’re going up too. Couple all this to record low income wage growth and things don’t seem to be getting easier!
Now you can complain about all these things, which seems to be the reactions of most people or you can get to work on making sure you’re in a better position in the future. For most that involves being less in debt and having more income. Paying down your mortgage and investigating secondary income sources.
Success By A Thousand Improvements
Everyone’s heard of the saying “death by a thousand cuts” and whilst it aptly describes what’s happening to most Australians, I’ve found in life that the opposite is also true. Great people, smart people, successful people don’t usually just flip a switch and become great/smart/successful. They get there by testing, practising, learning and trying everything they can at every turn to make their lives better.
I am a great believer in luck. The harder I work, the more of it I seem to have.
To get to that better position in the future you don’t have to do it all in one giant leap, in fact it’s essentially impossible to do this. However doing it one step at a time, where each week or month you learn something new, build something new, learn how to do something better, make your life more efficient or find a new income source will always keep you in front of the rest of the crowd.
While they’re watching Game Of Thrones or the new <insert next generic super hero explosion movie here>, you can be building a new business. While they’re constantly agreeing with their friends about how much power costs now you can be learning how to measure power usage and remove power hogs from your house.
Get in the habit of removing yourself from the dull and negative life that most people live and instead focus on making your life better every week.
It might be setting up a plan to finally go to that one travel destination you’ve always wanted to see. It might be figuring out how to get that promotion you’ve been aiming for since you started your job. It might be finally learning how to speak a new language or even just paying off your mortgage in under 10 years. Whatever it is, you’ll get there with a thousand small steps so start power walking!
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).