So, for reasons I can no longer recall, I started to follow David Ramsey for Australians on Facebook. I have a history of reading personal finance blogs, and whilst they often drive me insane (the content is very repetitive, and they all want to monetise… And a little ranty). This is how I’ve come to know the bible belt financial gospel guru. Aside from books, he also has a podcast. I do not listen to it.
I know the basics – there’s baby steps, and they are pretty darn simple and logical to me, a daugher of a banker
- Save a $1000 emergency fund
- Pay off consumer debts, start with the smallest debt and work through them. AKA Debt snowball
- Save for (three to) six months of expenses
- Pay into your retirement fund at 15% of income
- Save for your children’s education
- PAY OFF YOUR MORTGAGE
- Spend/donate etc
That’s from memory… If I got it wrong, I’m not too fussed. My post is about what reading all these posts have made me wonder…
How long would it take me to pay off my mortgage?
I kept turning the idea over in my head, and couldn’t work it out. So I broke it down.
First I’d get my offset account to “fully paid up”. For long term readers, you might recall that I go to this point with a previous lender. I am onto my third lender – each time the fixed term component ‘matures’ I review the market and go for the lowest interest rate. Cause.. loyalty gets you no where. So I started with
- ANZ (2 years, all fixed), then went to started in Dec 2011
- Bankwest (3 years, 20% variable with offset, 80% fixed), and now I’m with
- ING (2 years, 40% variable, 60% fixed) started in Jan 2017
When I looked at my regular ‘inputs’ to my offset account, I could work out roughly what goes in monthly, less what goes out monthly (namely, moving money out of offset to the two mortgage components), and a quarterly strata bill. I did a calculation and found out I could do it 10 months. Which was pretty darn close. And then… I received an inheritance, quite unexpectedly (and I never count those sorts of things). And now I’m close to 6 months. (And I don’t plan to put all the inheritance onto the mortgage, I plan to purchase two ‘big ticket’ items which I see as heirlooms – one is a gorgeous desk and the other is getting a ring made. Cause… a paid of mortgage is great, but the two items will hold memories, and were things I was saving for before this unexpected windfall). Let’s call that out – it would be January 2018! Wow. By my birthday!
And then, I looked what would happen if the same monthly amount *could* go onto the fixed mortgage month on month, knowing it can’t due to stupid rules. That’s not the point – the point was to motivate myself with the timeline of when I could have it ALL paid off – and the answer was, that amount would take 2 years and seven months. I was gobsmacked it was such a small duration of time. You ‘buy’ 25 and 30 year mortgages! And I’m talking about August 2020.
Of course, I don’t have a step 5 to fund of Dave Ramsey’s plan. (And I’m at 12.5% +$50p/w on my retirement). And I’m at prime child rearing age, so I’d happily have this plan hijacked by having kids. But each month I’m not pregnant (ha! I’m single!) is a month I could shoehorn some money into that mortgage and get closer to that end goal of NO MORTGAGE!
Oh, and 2020 is a much mentioned year where I work. Because politician Fred Nile got it written into law that if our company was sold (aka long term leased) there could be NO job reductions until 2020. Well… provided there wasn’t an agreed forced redundancy policy introduced – and you can be sure our strong union will die fighting a forced redundancy policy. But there’s this concept of job guarantees (when we have 3,570 employees, and Treasury did also say that could be certain types of contractors) until 2020. And… well… No one knows where we are at relative to that magic 3,570. To me, it doesn’t matter. Working hard is what matters. Take it a day at a time. That being said, so many people say ‘well we won’t have jobs in 2020’. I cannot think that far in front of me, there’s enough going on RIGHT NOW. But, that some mythical 2020 is when I could have a mortgage paid off. Imagine… I could be someone who takes in rent from my tenants (ha) and due to the rent differential, could live on the spoils. Ha! It’s not a plan I conceive actually happening, but it’s fun to imagine!
Now every time the doom and gloom mongers say ‘2020’ I will think about having no mortgage. What fun!
Feel free to check in, in a few months. Who knows, I might get seduced by international travel, and adjust this back a month or two… Let’s see.
I’m too lazy to switch mortgage providers. I know that’s what the financial institutions rely on. And they are in luck with me.
You’re doing well. I get wanting a thing of memories from the inheritance. Though of course if you’d paid off your mortgage you could then save and buy the ring and say it was from the inheritance which of course it would have been as you wouldn have paid off mortgage without it.
I’ve read Dave Ramsay. Like his simplicity. And as someone who doesn’t believe in consumer debt I like his message. Agree with you, he can be preachy. And repetitive.
Now did you ever think you’d be thankful for Fred Nile. BTW once saw him in Tassie with his second wife. Much younger woman.
NO I never (re: Fred Nile). Though I do find interesting is his intent vs what the treasury has clarified the law means, are two VERY different things.
I think being able to pay off the mortgage and buy the items is a balance between total gazelle like intensity of mortgage pay off. And I didn’t even factor into these projections a tax return or a bonus, both which have happened in past years. Don’t like to count unhatched chickens.
I think if I was on fully variable, there’d be no trigger to shift lenders… But alas, my ‘new’ mortgage fear started me on fixed terms, and I don’t actually mind a firm deadline and target.
So many investment advisers are saying not to pay off mortgages because the rates are low, so everyone should invest the money instead and make a profit. I have not done very well on my investments but the rates would still be better than mortgage rates. (Current mortgage rates here range from 2.2 to 2.9%) I received a major inheritance 15 years ago and I decided to pay off my mortgage in full rather than invest the money. I haven’t tried calculating what my gains would have been if I had invested it. I don’t care, really. The peace of mind of living in a paid-for house for 15 years is priceless! And I expect to be here another 15 years. Of course you are in a different situation if you use your place as a rental property, and I would never advise anyone on financial matters. I like your plans to buy two items of lasting value. You have nothing to worry about in 2020 – bravo!
Yeah I know Dave Ramsey says pay it off. Almost all Australian financial authors would advise to use the value in the property to buy another, and leverage, and only pay down the principle place of residence. But… I can’t fathom taking on MORE debt, to have TWO places. If there was a slump in the market, then I have two things that I can’t rent, or can’t pay off. Sorry, it’s just a little too much to fathom.
Interesting you mention investments. I have shares. And i know one brother plans to buy shares. And I think with the 1/3 of the inheritance I didn’t ‘count’ in all these calculations (the same third for the two items), I could also buy some shares. But to be honest, I don’t see a huge growth in my shares – maybe I’m too conservative. Maybe a 2% growth is all I’m getting and it’s not noticeable!? Who knows. Say nothing of some markets or types of investments as being highly volatile, and I think we’re established above, I don’t like that level of risk…
Glad to hear someone else’s thoughts on this. I’m in a similar position. I should have refinanced years ago, but never wanted to deal with it. Now I could just pay off my mortgage. I know conventional wisdom says invest it, but I already invest 27% in retirement accounts. I’m not willing to risk losing even more. But I keep hesitating cause I love having a big savings security blanket. I set a deadline of paying it off by the end of the year and found this post encouraging!
Oh Candi – I’m so pleased to hear I’ve encouraged you. I, since writing this, have fretted about what I spent money on (a $9.70 car wash, a $4 coffee and withdrew money for a memory making dinner on Friday) and how I should smash the mortgage, but then needing to remind myself that money’s a tool, and moderation in all things. I can and will spend money, and to have paid off my mortgage in 8/9 years is awesome, even if it’s a month more or less here and there. Will you post about your progress?
Thanks Sarah! You definitely did. I made another transfer today, woohoo!
I’ve never posted about financial stuff before, but if there’s interest, why not?
I’m stoked to see you writing about this. My husband and I actually have the same goal. We recently renewed our mortgage for 3 years, and the goal is to have it paid off by the time we have to renew it. That puts us in 2020 as well!
The argument that you shouldn’t pay off your mortgage while rates are low grates me. It’s easier to pay a large balance down while the interest rates are low than it is when the rates are high, so why not do it while it’s easy? Potential investment returns aren’t guarantees, but lower/no debt is. Also, I’m more inclined to bust my butt paying down a debt than I am to scrimp and save building up an investment account. I’d rather get rid of all the obligations so we’re not tied to anything while my son is too young to remember. I’ll build up an investment account while living comfortably afterwards. My account will build faster with those debts gone anyway, and I’ll have a higher standard of living than I would have otherwise.
Woohoo, we’re in this together!
I told some friends about the plan last night, they’ve bought a second place, so they don’t agree with my strategy. But I figure for now it’s a worthwhile goal and if life takes a turn elsewhere, I can easily scale it back.