Pay your mortgage off faster by cutting back on coffee?
I see ads like this all the time from other advisers and it tends to annoy me.
It’s a clear play on the meme that went around ages ago about cutting back on coffee of avocado toast to save for a house.
It’s designed to get you annoyed, give you some FOMO and make you think you need to do more, and they can sell you on buying rental property, with the aim that this helps you pay off your loan faster.
Now there is nothing wrong with investing to pay off your loan faster, either through leveraged rental property or other investments. But let’s not pretend that its easy or guaranteed.
And if you are going to do this, you want a little more than someone to simply sell you this, you need advice and a plan for how it’s going to work, conservative expectations on results, how to deal with market drops etc. I’ve been a property investor for nearly 20 years and its not easy, and it’s not for everyone.
But anyone can pay their loan off faster. Let’s take a look at this idea of whether you can pay your loan off faster by just cutting back on coffee.
Let’s assume a $500 000 mortgage at 5.5%, and weekly payments on a 30 year term. In Wellington a coffee is about $5.70 (it may be more or less where you are). So if you skipped buying 1 coffee a day, this is $39.90 a week, so let’s round up to $40.
If this is all you do, just put one coffee a day into the loan, you knock 4 years off the loan and save $80 000 in interest. It’s not going to change the world but it’s not nothing. It’s a tangible change to paying down your loan faster and you don’t have to risk buying a rental property.
But presumably you will get payrises, so what if every year, you up your payments by $40 a week?
Doing that pays it off in 15 years and saves you $251 000 in interest.
So not too shabby at all.
Now is it as exciting as being a landlord? Not, but its less scary as well, its certainty vs possibility and a good common-sense way to pay off your loan without having to add complexity to your life.
So if you want to pay your loan off faster, don’t want to just be sold a product that will add stress, but are open to looking at ideas that are interesting as well as simple common sense, a DUX Mortgage plan will give you the focus and strategies you need to do this.
Basic common sense from qualified Financial Advisers, not flash sales people.