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As I struggled and fought my way out of debt, it always amazed me how strong some of our beliefs take hold. “Common wisdom” like the normalcy of car payments, credit card debt, and a 30 year mortgage is so deeply rooted that rejecting any of them truly becomes an outlier mentality.
Today I want to talk about that last one – the 30 year mortgage. Everything about our mortgage lending system is set up to convince you that paying off your home should take decades.
Some Quick Math
The average mortgage payment will be between $1,000 and $1,500 a month. That means you’re paying between $12,000 and $18,000 a year – most of that going towards interest.
The average household income for a couple was $76,959 in 2010 according to Statistics Canada.
Now figure out your cost of living expenses. If they’re anywhere around $59,000 (roughly $76,959-$18,000), then you might not be able to play. Realistically, you should have a LOT more money left over.
The Challenge
Now start being aggressive. Eliminate vacations and new cars. Cut way back on restaurants and other entertainment.
Get creative and think about extra sources of income. This could be one-off things like annual bonuses, investment income, or birthday presents. What about finding a second job or asking for a raise at your current one? Rent out your basement or start a home business. Do everything you can to reduce expenses and bring in more money, with the goal that every new dollar that appears goes towards your mortgage.
The Result
Imagine if, after all this, you had an extra $20,000 – $30,000 to put towards your mortgage every year. All of a sudden that 30 year timeline is laughable.
Seeing The Numbers
When my wife and I bought our first home, I loved checking our online statements the day after we’d made a payment. Our interest charges accrued daily, which meant after a payment they reverted to $0.00, and the next day I could see exactly how much we were paying PER DAY in interest. At the beginning I think it was somewhere around $20 a day. That’s crazy. Regular mortgage payments had minimal effect, with the next one being $19.85 or something.
But when we started throwing lump-sum payments at it things got exciting. Very quickly we were down to $15 a day, then $11, and soon it was $7. I’m not sure why, but looking at this number rather than our actual equity made me feel like I was winning a game, and it made it FUN!
The best way to track and plan your mortgage payments is by using a mortgage calculator, which can be very motivating and exciting.
Use these calculators, like the ones available at www.mortgagerates.ca to see what kind of effect small monthly payment increases and lump sum payment will make. See ahead of time how being aggressive will truly revolutionize your future lifestyle. Own a home by 35? THIS is true outlier living.
