Mortgage at age 55? No way
Aaron Watt was never going to be one of those people who sleepwalk through their mortgage, taking 25 or 30 years to pay it.
The Napier man bought his first house at the age of 21, and cleared the debt in eight years.
They were kinder times, when houses were cheaper, but Watt was driven by an intense feeling.
"I hate debt with a passion," he says. "That pretty much sums it up."
Watt is 48 now and lives in a much larger, nicer house, having finished paying it off a year ago.
His motivated approach to paying off debt, which saw him become one of the earliest customers of the Kiwibank-owned New Zealand Home Loans mortgage reduction company, is in stark contrast to many.
Elder mortgage debt is a growing social phenomena.
Figures released late last month by Credit Simple showed among those who still have a mortgage at age 55 or later, the average debt was very high.
Among 55 and overs with mortgages in Auckland, the average is $393,229.
In Christchurch it is $221,778, while in Wellington it is $285,553.
In Hamilton it is $244,440, and in Dunedin it is $164,701.
And these are averages. Some over 55s have smaller mortgages left. Some, however, have much larger ones.
They are figures that stun Watt, and his passion for getting ahead has rubbed off on his daughter, who has no intention of getting to 55 with debt.
She bought her first house a year ago, Watt says, and she and her partner have already wiped over $30,000 off the debt.
"They have a 30-year term," he says. "But they are currently on track to have paid it off in 11 years."
Watt recommends indebted quinquagenarians (as people in their 50s are termed) take a leaf out of his book.
"If I was 55 now, and had $250,000 of debt, I could comfortably, with both me and my partner working, be debt free by the time of retirement age, and enjoy the journey as well."
Budgeting, reasonably frugal living, and using a revolving credit mortgage for all your banking (the basis of the NZ Home Loans system), are the core elements of doing it.
A couple's salaries are paid into the revolving credit account, reducing the amount owed on the mortgage, and so reducing the interest they pay.
The couple then spend on their credit cards until the end of the month, when they pay the card debt off from the revolving credit.
It's a strategy that when combined with financial discipline can rapidly speed up mortgage repayment.
CAUSES OF ELDER DEBT
There are many reasons why people still carry mortgage debt at the age of 55.
Poor financial discipline, over-spending, repeatedly moving, and sheer bad luck may all be reasons behind some of the elder mortgage debt.
But John Bolton of Squirrel Mortgages says some people are in that position as a result of a conscious strategy.
"I think it is a reflection of a lot of different strategies. Yes, there would be people having problems, but I would suggest it is better than what it has been historically."
Before the Global Financial Crisis struck in 2008/09, Bolton commonly met people who felt enriched by rising house prices who were grossly over-spending on lifestyle.
These days, Bolton says, it's rarer to run into extreme cases.
PLANS TO MOVE
Raising children is tough, and often leads people to buy in expensive school zones, leaving little money to attack the mortgage.
Instead, some people plan to move to a cheaper area when the children leave home, Bolton says.
But he reckons many get attached to the family home, and stay longer than they had initially planned, finding they aren't emotionally ready to tell the adult children they are putting their childhood home on the market.
Still others in expensive cities like Auckland and Wellington plan to hold on to their homes until they stop work, at which point they plan to shift into somewhere cheaper, clearing the debt, and hopefully finding themselves left with a sum of money they can use to supplement NZ Super.
Not all mortgage debt is incurred to buy a house.
Banks insist loans to small businesses are secured against property.
Bolton says some portion of the mortgage debts of people in their 50s will be business debt.
Often, the plan is to clear the mortgage debt when the business is sold.
There's another reason some people may be content to carry mortgages all the way up to retirement.
In Australia, it's become quite common for people reaching retirement to use their super savings to pay their mortgage off.
Money diverted into KiwiSaver is not available to pay down the mortgage, but becomes available at age 65, and some people tell Bolton they plan to use it to pay off the remainder of their debts.
"I hear that a lot," Bolton says.
Some people reaching retirement age with mortgage debt swap it for a different kind of loan- a reverse mortgage.
Heartland Bank, one of only two banks to offer reverse mortgages, says this is one of the reasons elderly homeowners give when borrowing.
There's another lesson from Watt's debt clearance story that people can learn from; Listen to the voices that urge action on you.
He credits an early co-worker for starting him on the right track.
When Watt got his first part-time job at the age of 14, an older co-worker hammered one important message home to him: Open a home ownership account at the Post Office.
These were accounts which attracted large government home-buying grants like the modern-day KiwiSaver.
"He was like a nagging old woman," Watt laughs.
But Watt did as he suggested, and little did he know, but his future wife did the same.
So when they bought their first home, they had quite a lot saved, to which the government made a generous contribution.