Marriage, millionaires, lunch in a brown paper bag and mortgage repayments
There’s been a bit of press about housing prices in Australia in recent weeks and speculation about which way prices will go. I got my haircut yesterday and during the conversation, the chick who cut it jokingly referred to marrying a millionaire to get ahead.
Most of us will be forced to finance our housing purchase the old fashioned way so I thought we’d look at a few ways to try to make it easier. I thought I’d run down a few facts for you first of all:
– The median Tasmanian House price is $365,000 (www.mypropertyhunter.com.au/news_property)
– The average Australian mortgage is $277,000 (www.abcdiamond.com)
Lunch in a brown paper bag
Big scary numbers right? Maybe, maybe not. I remember hearing years ago that if you didn’t buy your lunch at work every day but instead, took it from home and added the money you’d otherwise spend to your mortgage payments the results would be significant. I remember thinking what a geeky concept that was. But last night, I became that geek and decided to find out just how significant the results could be using a trusty spreadsheet and the cost of a basket of staple goods we all understand.
Rigorous market research tells me the following costs which would be baseline daily expenditure for many of us on a weekly basis:
– Early morning Hudson Ventie Latte – $5.90 … thats $29.50 a week
– Subway Roast Beef Footlong – $8.85 … thats $44.25 a week
– Peter Jackson 30’s cigarettes $18.25 … that’s $21.29 a week for your moderate 5 a day smoker
$95.04 a week $411.85 a month $4,942 per year
Potential Savings
Imagine I started work at age 19 and instead of blowing my money on stuff like the above I deposited the coffee and sandwich money into a high interest savings account earning 6.51% and added another $150 per month from my pay packet. By the time I got to my 24th birthday I would have had the equivalent of close to $70,000 in a savings account (a potential 20% housing deposit that’s going to save you a bomb in mortgage insurance!).
I then took the $70,000 got a $277,000 mortgage at standard variable rate of 7.81% per annum over 30 years with a monthly facility fee of $8 and monthly repayment of $1,996 (www.commbank.com.au) and bought a house to live in. Because I’d given up buying coffees and buying lunch years ago, I added that extra $73.75 to the minimum mortgage repayment. In doing this I would have discovered that at the age of 50 years and 4 months I had paid off the house 3 years and 8 months early and saved $65,480.60 in interest. Your moderate 5 a day smoker who gave up and put the money into the mortgage cut off a further 10 months of mortgage repayments and saves a further $14,796.30.
80 grand, sitting there on the table for the taking, just like that. That only leaves me with two unanswered questions:
– What’s for lunch? and
– How do I get to be 19 again?
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Great in theory and love the concept, but you still have to purchase the goods to make your lunch, and unless you want an unbalanced diet you are going to have to change this up every now and again and not east just toasted ham and cheese sandwiches.
Savings still to be made, but probably not as much as you indicated. Change your repayments to weekly rather than monthly and you will also make a great savings due to a few extra repayments.
You are also getting ripped off on your coffee, $5.90, WOW!!
Based on the cost of a Subway Footlong and a fancy coffee at Hudsons – we believe that you could still whip together a healthy salad each day of the week which would cost you less than these items, especially if you still lived at home and your parents didn’t make you cough up some cash for the groceries! … but toasted ham and cheese sandwiches are still our favourite!
So… that being said if you took the money that you would usually spend on those items and put it away, you would be surprised by how quickly it can grow!
In regards to changing the frequency of your mortgage repayments, you are correct! We hope to start looking at mortgages over the next month or so – we will use your suggestion as an example of how much can actually be saved by paying the bank more often.
Thank you for your feedback!
… p.s. head down to Hudsons and ask for a Ultra Caramel Late $6.00 (without the shot it’s $5.40) – we agree WOW !