There is so much advice out there about what the best financial moves you could be making right now. Pay down debt. Save. Invest. Do it all at once, and have a trip to Italy as well.
Here’s a look at Nicole Pederson-McKinnon’s perspective, that a mortgage should always be your first port of call.
The Best Insurance Policy
Pederson-McKinnon believes that a fully paid off mortgage is the best insurance policy money can buy. If home is where the heart is, it is also the key to stability and security for you and your family. Irregardless of your work situation, health situation or financial situation, if you’ve fully paid off your house, it’s yours as shelter forever.
So whatever might happen in the future, you have a solid insurance policy. And no price can be put on the good nights’ sleep you’ll get from that.
It Pays Off
While mortgage repayments may seem a bit crippling while you’re paying them, unlike other debts, once they’re paid off, you have gained an asset that will appreciate value. Think about it- a credit card debt leaves you with nothing (other than a bitter taste in your mouth and a keen sense of achievement) when it’s paid off.
You’ll still have the car once it’s paid off, but it’s a depreciating asset. Property increases with time, so you’ve got a roof over your head and something to back you up financially as the years progress.
Pederson-McKinnon also suggests that paying off your mortgage faster has financial rewards of it’s own. Her figures are incredible. Say you have a $400,000 home loan over 25 years. If you pay off an extra $100 per month, you slice two years off your loan and cut your interest bill by $49,000. Huge. And the savings increase exponentially as you increase the amount you pay.
If you can somehow find an extra $1000 a month, you will cut your home loan down by 12 years (almost in half) and save yourself $244,000. That’s a quarter of a million dollars extra you will have at the end of the 25 year mark. Think of what you could do with that money. It certainly is a convincing argument for paying off your mortgage fast.
On top of everything else, this system comes with no risk (as long as you can afford the money your are putting into your mortgage) and has a tax benefit. Because you don’t earn the extra money, but save it on interest, it doesn’t come into the ATO’s net benefit. Which Pederson-McKinnon says makes it an equally appealing prospect to owning an investment property, and without any of the risk.
Bucking the trend of super stalwarts, Pederson-McKinnon suggests you can wait on super contributions until after you’ve cleared your debt. Her point is that you’ll have plenty of money to divert to building your wealth- super, shares, property investments- once your debt is cleared. That quarter of a million can go into super, or into property investment to act as super. Her article is without a doubt convincing and food for thought.
If only I had a deposit handy, I would be very tempted to try out her theories. As long, I suspect, that I could resist renovations- which might spiral the whole process out of control.