We humans are very visual creatures. This is evident if you’ve ever done presentations as they’re always much more effective if you have something tangible and real to demonstrate with. Talking about a topic and showing something is a very different thing.
When it comes to businesses this psychological fact is used to great advantage both for encouraging certain behaviours and restricting others. For example, many businesses have their products on hand to physically demonstrate to you in person when you come in.
This means you can touch, feel and play with it making it much more memorable and likely that you’ll buy it then or later on. If they just stood there and talked about their new widget 2.0 it likely wouldn’t stick in your head nearly as much.
On the opposite side businesses conveniently downplay and essentially hide negative information about their products. If it’s not legal to actually hide the information, then they’ll do their very best to ensure it’s as hard to find and remember as possible.
In the case of mortgages the negative information is obviously the fees and especially the ongoing interest payments. The positive side is the fact that you get a new house and can “make your dreams come true” etc. As such most ads for home loans are always happy couples buying their dream home rather than couples handing over wads of cash to the bank.
The rub is that even though all of what I’ve just said is pretty damn obvious, most of us still fall into the trap and totally forget about our interest payments and loan term. We’re only human and try as we might, most of us cannot avoid common psychological pitfalls. Specifically we forget just how much these details end up changing our lives in the grand scheme of things.
Underestimation & Denial
We not only forget about this huge problem of our mortgages, we drastically underestimate just how important paying attention to it is. We brush the matter off with sayings like…
I’m just not interested in finance or money issues…
We’re already in so much debt… so what’s a little more?
I can’t plan my own finances, I don’t know anything about money…
I earn a decent salary and it’s never been a problem before…
I just don’t know where it all goes…
Any of those sound familiar?
This world wide denial of how bad mortgages are is I think is a huge, huge problem. To be clear I’m not saying that mortgages themselves are bad, far from it! Mortgages allow everyday people to purchase expensive properties they otherwise wouldn’t be able to.
However when you “set and forget” your mortgage for 30+ years you hand over a significant amount of power to the banks. They then gladly abuse this power and usually end up making you pay almost twice the amount for your house. Multiply this trickery by the billions that have mortgages and we’re talking obscene numbers here.
The fact that you’re probably surprised by the above comment of “making you pay almost twice the amount for your house” should hopefully indicate just how complacent we’ve all become. Yes, when you take 30 years to pay off your mortgage you end up paying almost twice the amount.
A $400,000 mortgage on one of Australia’s major four banks “Choice Package” rate of 3.92% results in your paying an additional $280,539 in interest over 30 years. Compare that to the $83,807 in interest you’d pay by paying the same mortgage off in just 10 years.
That’s $200,000 of your money the bank is taking off you! $200,000!!! If you have a bigger mortgage or multiple mortgages then it’s even more extreme. This is the real price we all pay for underestimation and denial.
So what can you do? As stated we’re all only human – if you’re not please do get in touch! – and so we all suffer from being heavily visual creatures. By hiding away the interest payments and overly complicating the way mortgages work banks know that you’re going to tune out and essentially never pay attention to them stealing hundreds of thousands of dollars off you.
They also know the idea that mortgages must be paid off over 30 years has been long, long ingrained into society. So much so that no one even blinks or questions it anymore. But that’s exactly what you need to do to break this theft.
There’s a very specific reason why here at MTM we’ve chosen the time frame for paying off mortgages to be “under 10 years”. It’s because it drives a stake right through the heart of most of these sneaky banks. Their huge, forever ongoing profits depend on people taking 30 years to pay off their mortgage not 10.
If everyone suddenly switched to taking 10 years – something that is not very hard to do even for single income people – their profitability would nose dive like crazy!
Taking 10 years is also extremely doable for the vast majority of home owners too. Many can even cut that down to under 7 years if they have dual incomes. We’re not talking about living on rice and beans or never having fun anymore. These use cases easily show that most people around the world can get a huge big win when it comes to their home loans simply by paying due attention to it.
So when was the last time you sat up and paid attention? Are you making sure your interest rate is competitive and is as low as it can be? Have you reviewed your mortgage in the last 6-12 months? Most importantly are you slamming 70% of your after tax income to it every pay automatically like we outlined in How Much Extra Should I Pay On My Mortgage?
Consider this an electronic version of me kicking your ass to get in gear now! Stop letting your bank take advantage of your human nature to the tune of hundreds of thousands of dollars and do something about it now!
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).