Will the bank own your home when you retire?
Hopefully not. But are you paying off your home at a rate that will leave you mortgage-free when you decide to retire?
Here’s the thing. If you want to stop working, but you still have a mortgage of, say $200,000, what are you going to do?
In the final quarter of your life there aren’t that many options available.
- Use your super to pay off your mortgage completely
- Use your super or savings to fund the repayments
- Sell your home, and downsize, clearing the mortgage on the way through
- Roll from interest only to interest only for the remainder of your life
None of these options sound all that appealing—or smart—do they? I mean, imagine working your butt off for 40 or 50 years, earning millions of dollars along the way (yes, you really did), and you missed out on a huge but achievable milestone.
When you own your castle outright, you can live in it without paying a cent in rent or repayments. It’s yours. You can bequeath it to your (now adult) children or your grandies. Now that’s a result worth aiming for.
So why treat your home like a savings account?
You: ‘Daryl and Jen are heading to Fiji in September. They’ve invited us’
Hubby: ‘Oh my god, I’ve always wanted to go to Fiji!’ (In 20 years, he’s never once mentioned wanting to visit Fiji).
You: ‘Well, I’d love to say yes but we don’t have the cash’
Hubby: ‘Let’s do that refinancing thing we did to pay for the BBQ and patio?’
The same thing you used with the pool and the garden. The big family holidays. The new car. On, and on, and on.
We’ve talked about this before: The great refinancing con. It’s one of the big reasons why every time you look at your mortgage statement, nothing has changed.
But the point I want to make here is different. This time it’s personal.
Look, if you don’t have the cash – real money – to pay for things, well, probably best don’t contemplate buying them. Learn to say ‘no’. It really is that simple.
The greedy grubs at the bank have made it way too easy for us to use the equity in our homes for splurges we should save for. We could look past a genuine home repair – budget kitchen reno with new appliances – but we can’t look past a jacuzzi, BBQ and patio you’re going to use a few times a year.
Keep this in mind. You don’t ‘earn’ equity. You earn income. What the hell am I talking about?
Here’s some economics 101: Equity is the difference between the value of an asset and the liability on that asset. For your home that means the difference between the current market value and the mortgage.
You could say that the equity in your home represents the portion of your home that you actually own. The greater the amount of equity, the more of your home your own. When you spend, you’re shooting yourself in the foot. Defeating the purpose. Going backwards. Letting the bank get a leg up.
I’m saying that if you haven’t earned it, it’s smart not to spend it. If you’ve earned it, and saved it—for a specific purpose—go nuts. It’s yours to spend.
Tim is quick to point out that Clover Partners doesn’t exist to tell people what they can and can’t do with their money. And that’s the truth.
That said, with the effort the banks (and everyone who wants a dollar from you) make to wheedle your money from your pocket, you might just need a well-intentioned and well-informed voice to make sure enough money remains in your pocket so you can have the things you dream about – Like a comfortable, well-funded retirement.
Does the idea of a relaxed, mortgage-free retirement sound like what you’ve been working towards? Maybe you want to pay off your home years before you stop working so you can begin to save? Whatever path you would like to go down, it’s never too late to change course. Let Clover Partners help you.Want more insight? Give us a call on 1300 823 995 or touch base below