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And welcome back to the show. Play that funky music, white Boy. I'm not sure if that's a reference to me or something, but it is quite a grievy little number to get down to. Anyway, if you have missed any of the previous hours, had a fun chat there with Dr John Cameron about float tanks and then just on to general health questions. But if you've missed any of the hours you want to catch up on it, then go to the Weekend Collective on iHeartRadio, look for
the podcast and away you go. But right now it is time for the final hour of the show, which is Smart Money. And my guest is she's a financial advisor and coach and she's well known to all of you because she's been on the show a few times a half of times. Hannah McQueen, good afternoon.
Hi are you well, Yeah, I'm great.
Looks great summary today that it's a summary down now rocking the polo shirt. The sun is shining into the studio and it does feel a little bit just like we're heading towards the warmer weather for once.
Yeah, we're going in the right direction.
What's been keeping you out of mischief?
Just generally, but actually having seen that it just got back from holiday busy parenting.
Actually you have the post holiday sort of relaxed, sort of because.
Normally it goes after the first week. I went over to Europe jealous Berlin, did a little marathon there, and then you did okay, I did that, yes, And then to France and then home by Dubai. We had the kids and they were less annoying than the previous holiday. So I was saying to my husband, I feel this is trending in the right direction. They were, It was good.
How old are your kids?
Eleven and sixteen?
Okay? And where where did you go in France? Did you go around or just a couple of two or three locations or.
While we were at Disneyland for a couple of days, and then into Paris and then to Versailles, which was amazing.
I've heard about Versailles. Some people sat it's fantastic, other people say that it's not necessary sort of thing.
But the palace, the palace, that's right, Yeah, the town of as. I don't know about that, but the palace and the gardens just incredible.
Just I think we have to stick that on the next the list next time we go, even though I thought the last time would be the last time, but now I want to go every year, which is a bit of a bummer, which is why we need ours like smart money.
That's right? Do you speak a little bit of French or German or I was gonna say some pigeon German or French?
But I know a vision? What about it? So the and so you did the Berlin marathon? Come on? How was that? Doesn't sound like it's quite the holiday as most of us want to understand a holiday.
When you break down what makes for a good holiday. I always think being able to eat a lot of food and do nothing makes for a good holiday, but then you feel bad for it, whereas in this situation, we did the marathon first week, so I was sanc demonious for the next three weeks. Yeah, stop in my face.
We did it, did you? You and your husband?
Yes?
Yes, well done you what time?
I did four forty he did three fifty something.
Oh how selfish not to run next to you?
In soide I don't blame him, but yeah, three what three fifty?
I actually don't really know too much about marathon times, but I imagine that three fifty anything under four for a guy's pretty, isn't it?
Was it?
No?
For me?
Well yeah, I think it's incredible.
Yeah, yeah, Well you ran a marathon in Berlin and was weather all right?
Yeah it was? It was nice, nice and cool. I mean I I don't like running in the hot, so it was perfect and yeah, excellent, Well well.
Done, and well done of giving your excuse to gorge yourself on food afterwards.
I know.
Now Onto more down.
To worth itship money.
Yeah, so the first thing I wanted to chat about his ideas on on and because you can do all sorts of things when it comes to spliting your mortgage, and it often seems like it's a newsflash to some people. They go, I didn't realize I could split a mortgage. Hopefully and more people know that. But with inflation on its way down, obviously the cash rate, obviously the cash
rate's going to fall, of course it is. But I've seen some I think heatherdo for Cellen might have wrote it was written a piece saying that she doesn't think it'll fall as far as it should, because that would be a mission by Adrian or that they've got it wrong, which very very cylical, cynical. So because I've heard people say it could for one or one point two, you know,
one hundred and twenty five basis points. So she sort of was like, maybe at only four seventy five, because then it's like, I didn't get it that wrong.
No, Well, I guess the risk there is that we go into stagflation and that would be a fail. Well, when it's the opposite of inflation.
Where it goes backwards, it goes.
Backwards, and he certainly doesn't want that. No, So I I would respectfully disagree with this's comment. He may be late to the party because he has it's certainly a habit of doing that. And the banks also are particularly late to any party that involves dropping interest rates. I mean,
they are at their own little club somewhere. But I do think rates will drop, and I think they'll drop by at least one percent of the next year, possibly as much as one point five because and that's just to get to a neutral.
So let's just remind usself, where are what is the cash.
Five point oh, I can't remem what the cash rate is, but the interest rates are about five point five for twelve months, so we should be in the late fours, I would say with thee in.
My mind, I think it's four point four points. It's four point seven, so that would be taking it down to sort of like we could get it down to maybe three and a half in the next I mean, they could.
Eat and that's not neutral. That's still them trying to control slow the economy down. So when they were trying to increase the economy, that's when we go lower again. But everyone will know, Oh, the banks are slow to kick in to gear these interest rate cuts, so I don't know what you do about them, but I would be expecting interest rates to come down. So then the question really is do you fix for six months or
twelve months? And the answer to that depends on what is the gap between the six months and the twelve month rate. And if that gap is more than point six percent point six of a percent, then you probably should be fixing for twelve months. If it's less than point six, then I'd be going for six months and then refixing in six months time.
I've just brought up the interest rates on interest stock, Court and Z, and it looks, unless my memory is betraying me, not long ago the long term interest rates were really favorable. They were really trying to entice you to a longer interest rate, which tells you the bank thinks that the cash rate's going to come down. But I'm just looking at A and Z right now and this is and their long term rates just on A you know, not with the special LVRD or they've got.
They're six months rates seven point one and their five year rate I would have thought would be in the fives, but it's six point one nine, which is seems strange to me. Is I'm not sure what?
Yeah?
Do it with twenty percent?
Oh okay, yes, well it doesn't show a five yr rate, but it says five point six nine percent for three years? Yeah, which is is that reasonably enticing?
Well, I think you would get if you went to the bank and said give me your best rate, not these kind of interest stock cod or n Z rates. Like the best rate, I think you'd get it into early fives. And for some people just fixing that for three years and giving them certainty for three years at that rates, Happy days. I mean, it was I remember ten years ago where or fifteen years ago before the
GFC right where. I mean, everyone talks about eighty seven crash and rates going up to twenty two percent, but most of us can't remember that. But what we can remember is just before the GFC rates got up to thirteen percent.
It's funny we were just talking about than the property are yesterday.
I just upset the eff caut No.
No, you haven't upset anyone. It's just one of those conversations that, during the course of talking about property and its affordability, that.
We take a trip down memory lane to eighty seven.
We always do. I can't tell you a number in full. I mean, it was pretty horrendial, of.
Course, and I don't want to make laugh of that, but the mortgages were like one hundred dollars joking, I'm joking. No, of course, that would have been horrible that period, without a doubt, and you do have to be able to weather that. It was just the extreme weather conditions.
So I think probably the thing is, are there are there different strategies for splitting your mortgage and let's just go okay, So when we're talking about splitting your mortgage. We might have a portion that you've done for five years, you might have another portion for a year, and then you might have some revolving Yeah.
So I'll tell you what I would do with my clients.
And it doesn' oh, well, I let you explain it.
And then so this is on the assumption that it's your the mortgage on your home, right because that's unproductive debt. You want to get that paid off as quickly as possible for investment property debt or investment debt, which could be investment, for borrowings, for investments, or for your business. We're not prioritizing paying that off. It's just the home mortgage to start with.
Okay.
Typically I want to have a revolving credit that you don't have f poss access to. So it's not a transactional account that's just a fast way to go backwards. So we're not interested in that, but a revolving credit facility that equals the size of your annual surplus. So if you make if you've got a surplus, so that's
the amount of money you have left over. A lot of families don't actually have any money left over because that's one of the first questions I asked, I say, how much did you save last year?
And they're what are you talking about?
But if it was twenty thousand dollars, then that would be the size of your revolving credit facility, and your job is to pay that off over the course of the year. That should naturally happen. And the thing with a revolving credit is that it's on a higher interest rate, So it only works to your advantage if you are paying off the principle. Otherwise walk away. It is not working for you. You're actually just paying more money to the bank.
But if you so, if you're disciplined and you know that you can stick to that saving that you've predicted.
Yes, then that will pay half the floating interest rate. So a revolving credit is a floating interest rate, so it's normally one and a half percent higher than a fixed rate. So you should stay away from that if you don't have any surplus, like why would you expose yourself to a higher interest cost, or you do that if you've actually got the capacity and the discipline to pay off a chunk of it. But the amount you have on your revolving credit is linked to what you
can actually pay. And when I'm working with clients, as I say, they might have a natural saving rate of twenty thousand dollars a year, my job is to get them to fifty thousand, so I would have a fift A revolving credit. In that situation, then you say, okay, we want to have a chunk fixed for one year. This is typically if interest rates were normalized and we weren't going to an interest rate dropping environment, you'd have a chunk fixed for one year, two year, and maybe
up to three years. So back in the day, we used to fix quite comfortably for so.
You have you'd have three or four splits in your mortgage.
That's right, but that's on the assumption interest rates aren't coming down. When interest rates are coming down, there's no point fixing for long unless the balance the costpity and the reason.
So if they're stable, you're going you're having a long chunk, which is cheaper because that's right, and then you're having a shorter chunk because you may actually be paying something off on that. I guess in a year or two.
That's right. So you think, well, if you had that revolving credit, and let's say it's sort of like a yo yo at the bottom of the yo yo curve, and it's your negative twenty thousand dollars. So your job is to get that up to zero over the twelve months, and then the chunk that was fixed for twelve months comes up, and that then pushes you back into revolving credits, So that one year chunk might be for thirty thousand dollars. It's linked to what you're capable of paying off the
next year. In theory, you're supposed to be getting fitter and fitter, so you're supposed to be getting better at saving, and in addition to that, your debt is coming down faster, so you can propel that forward.
So what about in the environment we've got now in terms of the way people might want to structure their mortgages, Because let's just assume that there could be another whole one hundred points come off with the cash rate, which would mean instead of a which means a six month term might be instead of I'm just looking at ASB here six point thirty nine, it might be five point three nine or five point four or whatever.
So whether you should fix for six months or twelve months comes down to the difference between the six month rate and the twelve month rate. If the gap the difference between them is more than point six of a percent, I would be recommending you fixed for twelve months, because it's unlikely even if the rate drop, the rate would have to drop by one point two percent in the next six months in order to be cash neutral with fixing for twelve months. The probability of that is low.
I would say, I would say that the rates will come down, maybe up to one point five percent. I think it'll be in the next six months, probably over the next twelve or so months. So whether you fix for six or twelve months comes down to the relativity of those two interest rates, which differs depending on the banks. Some banks have the rates really close between a six month and a twelve month and so then you're saying
fix for six months. It's greater chance you'll make more gain in the next six months than what you will in the first six months, but it will be enough to offset you fixing for twelve months.
It was interesting you said about the revolving credit not having access to it, because we did have acs. We did use the revolving credit as our living account, but we shoved everything into it, so we would only be withdraw We weren't spending it using to spend for just you know, frivolities, but we did. I think that's right. We were using it because we knew where we're going
to have. I think we're got an eighty thousand dollars revolving credit, but it was because we were doing a renovation, and say, we would be borrowing that as we spent money, but then we would everything we went went into that account until we hopefully got it back up to zero. Yeah, that's it, And so that that felt like a legitimate way of doing a revolving credit.
Yeah.
I think that that's a one off use of a revolving credit, I think, and that's smart, Like it's an efficient one maneuver for most of my clients. We are committed to paying the mortgage off in five or six years, right,
so we need more than one maneuver. We need clarity, we need clinical execution, and kind of lumping money into an account actually kind of slows things down because when you pull that money out invariably, although it literally of course, it made sense to have the money and the revolving credit that literally will save you more interest but the psychology of starting to go backwards has more of an impact on your day to day spending when you draw
that money out. So we're trying to balance the reality of people's situations.
Isn't there something as well? I don't know, maybe this is just stay in z where I can't remember if it's at the end of each term or at the end of each year. You had the option of paying off a five percent lump some.
Yes, but you can't reaccess that. So most banks give you that opportunity.
So what I mean is that something useful for I mean, if you've got a long term mortgage, is that you could instead of having revolve and credit, if you can save that up, you just whack it off that long term But.
That but you can't reaccess it. And the most important thing I think when you're trying to make financial progress is to have flexibility, because opportunities come usually at the most inopportune time. And you make a lump some payment on your mortgage, sure as eggs, you will regret that about forty eight hours later when you needed that money for something else that you just didn't even know about then.
So I'm a believer that you don't pay anything off your mortgage voluntarily unless you can reaccess that money.
Okay, I had not thought of that at all, because I've considered that five percent payment even though I've never made it.
Well, but I get it. The theory of it makes perfect sense, just like the theory of credit cards makes perfect sense, you know, like, use the bank's money, save what it's.
Don't miss a payment.
Yeah. Look, I think the psychology if you told me you use your credit card, I will know straight away that you are inefficient with your money. Sure as ex we.
Do everything on our credit card, and we pay it off every month.
We go, yes, inefficient with your money, because the point isn't that you can't pay it off. That means that you're not going backwards. Right, you've paid it off. There's enough money to cover your credit card. For many of us, we can pay our credit cards in full. The issue is that because you've used a credit card, have you spent more than what you would have other worse I spent if you do.
I think that's a very good question. I think we're reasonably disciplined on that. But actually, and I'll tell you this is you're going to tell me off of this. I do it because I just love the points.
Oh my lord.
Well, hands up? Who's hands up? If you are out there listening, how many of you have got a credit card and you know that maybe you should listen to Hannah's advice, But you do it because you like that little the fact that when you go for your your annual holiday, you go, hey, guess what, we've got one thousand dollars in airpoints.
Okay, okay, So I will listen to that. But at the same time, you are not allowed to complain that the banks make billion dollar profits. They go hand in hand. Oh I never do.
Really, No, I'm not a complainer about I think everyone's in it to make money and if it's up to us to make the decisions we want to make, and don't bitch about the profits. Okay, very surprised. I thought you were going to say, surprisingly reasonable?
Are they go hand in hand?
Mentioned Republicans? Ready, Hey, so how do you structure your mortgage? What are your rules of thumb that you use when it comes to spliting your mortgage? Revolving credit? But actually, while we've thrown it out there, it's just become the hot topic. What's wrong with having a credit card and paying on our for every month. Hannah's audience. I'll talk about on eight hundred eighty ten eighty and you can text on nine two nine two. The lines are open. Let's get cracking.
Well done, cure, it's tonight. I got to feel something, right, I'm so scared. He kids a phone off my chair and one'll get down the stairs. Clowns to the letting me jokers to the raid. Here, I am nuck in the middle with you your.
Sounds, and welcome back to the show. I'm Tim Beverages. This is a smart money. We have Hannah McQueen in the studio. She is fresh from her holiday and running the Berlin Marathon. And I don't know how long we can use that line. Probably just today.
It's done. Really, yeah, it feels we're even talking about embarrassing.
Really, I think we can use it for the next half an hour. But anyway, the question is how are you structuring your mortgages with the cash rate looking like it's going to fall and the also my confession that I use. We use our credit card for all that spinning. We pay it off every month. Of course we like the points, and Hannah, I think we've just resuscitated her and she's she's back, she's back up right again. But we're taking your calls on that as well. On eight eighty lou Hello.
Hi, how are you good?
Thanks good.
I basically I was raised by my family using our credit cards on a monthly basis, and then when the bill comes once a month, we pay it up. I have moved away from it ever since then and started using my debit card more. But there's certain things that I do that I've found is work better if I put it on my credit cards, such as my feel. I've discovered that it's it's easier to manage your feel that way than paying for an upfront through your debit card.
But also things when it comes to my house, if I need to buy new thing for the house, it's easier to put that on the credit card than on my debit card.
Oh why would that be? You mean you rely on credits? In other words, you rely and borrowing.
No, no, no, I definitely do not rely on my credit card to buy these things. I can buy it out for outright I need to, but it's it's more of a I feel like it's more of a separation of my money. Even if I if I buy stuff on my ABMB, obviously that's a business expense, but I still buy it on my credit card because there's that separation that Okay, this is my feel this is my
property expenses, and this is my personal expenses. I can say like if I go shopping, if I go buy out, if I go out and buy some posts, that goes on my debit card, but not on my credit card.
Yeah, so you're using your cards to kind of give you some structure and segregation between spending. That makes sense. Yeah, I think think that the key with credit cards is definitely bills and things, provided you're not negatively impacted. You know they're not going to put a premium because you're paying by credit card, it makes sense to put to
automate your bills as much as possible. And whether that's a credit card, well, a separate account is normally what I would have, but or a credit card, it's just the discretionary spending. When you use a credit card, you spend more. Like the studies are conclusive, you spend more. But I like the idea, Lou, that you've separated out the Airbnb so that that sits in a separate account. Or a different way kind of methodology of how you account for it that makes a lot of sense.
And because I can't justify going out for dinner and spending one hundred and fifty dollars, let's say, for three people, I can't justify putting that on my credit card because of the interest that will be paying back on that. I would rather just pay one hundred and thirty dollars once and call it a day instead of having to pay back. I can take one hundred and seventy dollars for a night out, but.
That's on the assumption you don't pay it off at the end of the month.
Yes, but that's why I put do it that way. But obviously the card always gets paid. But it's more just yeah, it's more bringing in that structure. And I don't know i've done it that way. My family said I'm stupid by doing it that way, but I've just felt that it's given me more financial security as well as financial structure.
And what don't your family like about it? What's the objection?
The objection that I'm using my debit card to basically fund my day to day lifestyle. It comes down to the principle that it's against how they've done it their whole life. But at the end of the day, I mean, I'm twenty four. I can kind of make these decisions on my own, can't.
I absolutely go forth. Lo, you're doing well.
Actually you are putting off when you're talking about your credit card. You are paying the entire credit card some off, are you.
Yes, So at the end of every month, I pay the lump some on the bill. I don't just pay the monthly informent. Okay, yeah, So it's leads five minutes. They let's say this month's bill is five grand. I'll put the five grand down and then it's start.
Okay, Okay, now, thanks for you cool mat, I appreciate it. Are we arguing? Are you sort of almost arguing against having a credit card? Full stop? Anyway? Just because credit card?
I think, pay your credit cards. Use credit cards to pay your bills, internet purchases. There's a place for that.
Oh okay, your discretionary transacting, Like.
Yeah, for your discretionary purchases, whether that is what you spend on hobbies or going out or food or special events whatever. When you use a credit card, you spend more than when you have to use cash. M conclusive is that yes, you do.
So if I don't think would matter what card I had, I would buy what I need when I need it, and I don't and not otherwise.
It's this, Well, the study is the pain of paying. When there is a pain to pay, you spend less generally, or the easier it is to pay the more you spend. So it's the inverse of that. So credit card tap and go like, oh my lord, that's the worst now and pay later? What the heck is said all about fastest way to end up poor? Actually, my sixteen.
Year old, well, actually, isn't it funny? I don't. I wouldn't say I got any particular financial guidance from my parents, but instinctively I always thought maybe Mum must have said something about layby and and oh and just going into debt to buy something that's an optional thing always just to me intuitively, I just thought, hang on a minute, if I can't afford to buy it, now you know I'm not going to buy it. Why would I want to pay that price plus the interest over several years.
And yet for some people it's sort of their modus operando. I just sort of throw that in there. I'm not sure what value it has to the conversation, but there we go. Yes, nothing from Hannah.
They will keep something in French to say to you, but no.
Okay, right, okay, let's carry on with the calls. We're are we up to Danielle? Hello? Hello?
So my thought comic credit thing is that I think it's a bad habit to get into, to be paying on your credit card and paying it off at the end of the month, because what happens if sometime within that month, maybe you have an accident or lose your job and you're not able to pay that amount and
then you're stuck with a bill. In that habit, you're not able to keep it going because you can't don't have a job anymore, or something like it sounds like you're getting in debt for no reason, Like, well, not for no reason, but that kind of thing, like that's just my thinking.
I know what I mean, what if there's a catastrophe and you have bought something on your credit card.
Well, I think that what Daniel's saying is that with that paid at the end of the month, there's no rigor in emot instance, there's not much consciousness with your spending. There's just an assumption that you'll have enough money to pay it at the end of the month, and most people do. But equally most people well let's let's say that, but equally most people aren't making financial progress. And there
is a link between the two. And I think when you can introduce rigor and structure and guard rails and objectives, people with anything, whether it's fitness or finance, you tend to level up. And what credit cards do is they take down the guardrails, they take down the consciousness. Everything is easy, it will always be okay. The issue isn't whether you can pay that in full at the end of the month. The issue is did you spend more because you used it?
And also can you afford to keep that going? If you don't have a job, or you don't or you've had an accident or something, can you afford to keep that habit going? Because you've built this habit up. It takes thirty days to build a habit. You've built this habit up of using your credit card every single purchase that you make.
Or on the way that you could get around that. Danielle, though it could be to just pay it off weekly or with my clients who insist on using their credit card because they get these points or whatever. I say, we'll run it either in the positive or pay it every forty eight hours so that you're always at a zero sum balance. That brings in more true consciousness as well.
That's yea, and I thank you. I appreciate that, Danielle, thank you. I think that's an interesting question around the whole pain of paying, isn't it if And I might have even said this to you, but I've played around with the idea just philosophically because I couldn't ever be bothered,
to be honest. But imagine if I wonder what difference there would be in people's expenditure if we, despite the ability to have credit cards and order things online, et cetera, but if every time you went shopping down to the moor, every time you bought something, you had to hand over cash. Yeah, I wonder what difference that would make on the way
we spend money. Because there is something. I mean, there's a generation, there's a generation of kids who don't even know what it's like to hand over cash these days, because it's just mum, can I have this, or I've got somebody's given me a pressI card. It's all plastic, I know.
Yeah, So it's well with my clients. I find that it's on their most frequent costs and can be as much as thirty percent difference. But it's your You've got the tactile payment of cash or the inconvenience of pain with cash cash, the increased consciousness, and the other bit there is that there's a target on what they're spending. So normally those three things are what creates the improvement. Probably with a bit of a bit scared by me as well, is.
That the part is that the part of the equation that we have ignored.
It's like people want to result, right because I don't.
The callers have said something about credit cards and just the discipline you need. If I decided that I wasn't even very much, if I found out that I, say I lost my job or something, wasn't even the money, I actually just wouldn't use the credit card. And I don't think I'd find that a hard adjustment to make, because I just I'm very conscious of what goes in, what goes out has to come back in, and so I cautious with my spending that's right.
So you're not reckless at all with your spending, but there is all so en acknowledgment that there's no room, there's no margin of error when there's no income coming in, right, you just have to spend less. And it's interesting that you acknowledge that you'd put the credit card away because the fear or the risk that you might spend more than what you should is removed when you remove the credit card.
I guess the thing is, how do you actually get that consciousness of the pain of what you're paying because as you're right, I mean, you go, you look at what it's simply you hand over something over you want this, you just hand over the plastic magic, it's paid for you.
That's why they say physically using cash is helpful as a second thing. Using a f boss or a debit card after that, but links to a bank account that tells you you're about to go backwards. When you are about to go backwards, it's because the problem with the credit card, which Danielle was highlighting, is that you can goo a whole month and you can still keep spending. So you're trying to introduce rigor that not around the things that are important to you, but you lose that
rigor you give it away. And it's kind of like if you say you do want to lose weight or get fit, but you don't actually ow the couch. It's well, you've got to do something.
Well. Actually, there is an analogy with the creds to diet. It's that you think I must eat more healthily, and then you walk past the cake store and you go, I might have one of those. It's only once, and then you do it again in the afternoon. You don't really realize because you haven't got a plan. You're just living sort of a bit too in the moment, which you just relax.
I think most people would say that they're not bad with money, but they're just relax It's sort of I've got enough money to not worry, as opposed to well how do I get this money working harder for me, which is a different mindset.
Okay, well we're going to take a break, come back, and we've actually introduced by accident. It's sort of deliberately by accident, just the question around credit cards, but it's all connected with structuring your mortgage. On the news of the cash rate and the OCI heading down and how you split your mortgage. We've got correspondence on people telling us how they put their mortgages and all that sort of thing. We're going to do that as well, but
also our credit cards the devil. If you really want to get disciplined and feel the pain of every dollar you spend, it is eighteen minutes to six news talks. He'd be.
Arnings. We're back up in the wood among the evers.
Yes, this is smart money, and my guest is Hannah MacQueen. She's a financial advisor and coach. We're talking about how you structure your mortgage, but also just the whole deal with credit cards. Because I say I stick all out, We stick all our expenses on the credit card. And Hannah has told me that I'm a very naughty boy
for doing that. But actually, before we get into some of some of the correspondents, by the way, if you want to give us a call and express your opinion on that, you'll get straight through eight hundred and eighty ten eighty. Let's just remind people, because you know, people have a little bit of extra money and they might think about all that. You know, people can make decisions about how they spend their money, of course, but they might decide they're going to have a holiday, or they
might decide to pay it off the mortgage. But it's worth thinking about, Oh if I save that twenty grand now and pay it off the mortgage instead of spending it, how much is that actually worth further down the track compared to the interest you'll pay if you haven't actually paid that off. You know, the I don't know what the expression is for it.
Bit well, the pigeon economics of it is sort of one for one pigein economics. So you had a mortgage of five hundred thousand, you're going to pay close to three times that back to the bank over the life of it, right, which is just.
It is.
It is out of control. I'm just like, how is that even legal? But that is our system. So you're going to pay that. For every dollar you put against the mortgage, that tends to save you a dollar in interest. So if you choose to put ten thousand dollars against the mortgage, of course you'll pay down the mortgage by ten thousand dollars, but you will save yourself a further ten thousand dollars an interest that you won't pay, which is great.
I guess well makes a big difference when you're talking about retirement as well. If people are thinking, oh, I'm just going to say, if you've got you come into a lump some of fifty thousand bucks and you think, oh, let's do something nice with that. But what you can potentially do if you whack that off your mortgage and put that money which you would otherwise spend into interest into the bank over that period of time, that's got to be worth well.
Where you get the kind of the extra the compounded return is if you've got your fifty grand, you put it against the mortgage, it's going to save you interest costs. You're going to get mortgage free faster with that money. You've channeled it through a revolving credit facility so you can reaccess it, and then that becomes a deposit for an investment property as well, and then you're getting capital gain on a new asset. You've paid off more debt
on your home, and your safe yourself interest. That's sort of the quite it's quite a hefty triple axel.
It's quite a hefty water if scenario. Isn't it just that simple decision to maybe just use that money, pay something off, and get a head on something else. It can really turn your fortunes around, can't it.
Yeah, Well, I think that the everything's about trade offs. And I think one of the concerning things is most people don't realize what is possible. If we kind of got rid of all their inefficiencies and really started working to a plan, they will get ahead so much faster. But they don't know that, you know, because their reflection to themselves is, well, I'm not bad with money, so I don't understand how I can be that much better? Like,
how is that even possible? And I think there's just a knowledge gap, and we've got to overcome that because people are capable of more than what their bank balance suggests.
Okay, let's take some more calls. Lynn.
Hello, Hi, how are you this afternoon?
Actually you're beat.
I'm loving this.
Oh it's quite It's a lovely day here in Central Targo.
There you go?
Which part of Central Otago?
Come on, I'm just above Alex so I'm actually heading down to Gore.
And I love Central Love Central Right, let's go. What did you want to discuss?
So?
I have a credit card, but I don't use it. I the only time I use it is when I'm buying bolved from a company up in the North Island. But apart from that, I never use it. If I can't really pay cash for the bigger things, I you know, go it out to use.
It's good practice, that's very good practice.
Yeah. I think I got that installed in me for my ex who was very frugal. And it's like, you can't afford to pay cash, you can't don't.
Need it, So it sounds like that's that's.
Sort of my philosophy. I mean, I'm using a credit card, but I sort of think can I afford to buy it or not?
Yeah, And I've got to my mortgage. I have a small mortgage and next year my Kiwisaver comes due, so I'm going to whack everything that's on my Kiwisaver onto my mortgage, which will then reduce it down at a heck of a lot further.
Before you do that, sorry, Lynn, who's the bank that you've got your back mortgage with? We stack right, So before you pay off the portion of the mortgage that the kiwisaver can pay down, you need to split the mortgage to the amount. So and you can split mortgages that should be fine. I mean, sometimes there's a break cost, but often there just isn't, so we'd ask the bank.
But let's say your Keiwi saber was fifty thousand dollars and hypothetically your mortgage was seventy thousand dollars, so we'd say, let's split seventy thousand dollars off the mortgage. So you'll then have two mortgages, one of twenty thousand, and one of said I don't know, I've lost my mask fifty. So then and with the fifty thousand dollars, we convert that to a revolving credit facility or even an offset facility.
Then you deposit your key we saver in and that has the same outcome of you've paid off the debt. You're not getting interest charged, but it has the benefit of you being able to reaccess that fifty thousand dollars should you need to.
Okay, quite good stuff.
Hey, thanks Lin, unfortunate we've got to go to a break. We'll be back in a tick nine minutes to sex news talk. Se'd b BlimE me. Time flies when you're having fun. This is smart money. We've only had a couple of minutes left with Hannah McQueen. I do love this. I have to do this text that we're talking about. You know, whether you pay the money off now that you've might have on a holiday, how much it's worth if you pay for your mortgage. It's probably an extra
dollar for every dollar you pay off. Somebody said, yes, it does cost more down the track, but then you don't get to go to Berlin.
You're more good free to start with, babe.
Yes, indeed, that's real. Well, that's the one guys. I split the mortgage into one, two and three year portions once is recommended by the broker. The market dropped and three years ended up too long. Then since then two years max and one in recent time mature again March there might be a short term again with another drop likely question mark from Mike. Oh no, he's having a good crack at splitting this mortgage.
Yeah, I agree with it that probably for the next year you don't want to be fixing much more than twelve or eighteen months. But it's just going to come down to what those interest rates are. It's more drops to come.
And lucky last, Hannah, I put most everything on the credit card. I pay in full every month never pay interest, receive points and a cash bonus every year. Well that's all good so long as you are feeling the pain of each purchase, isn't that right, Hannah?
Or you're more good free? Oh okay, right, so you don't have to care as much. But if you're not more good free, does it really matter if you get your points back? Because I would have saved you more money so you could have bought the thing yourself with the cash you didn't actually pay.
If people want to catch up with more of your work, Hannah, where should they go?
Pop to enable dot me and let's get serious about getting your hit.
When's your next marathon April? Oh good, you have got one schedule, got to.
Have the next goal?
Really where we're all to events?
London?
London?
Yeah? My son said, why don't you do it at marathon in New Zealand. I'm like, because I don't think I'd be motivated to do it. You've got to work out what's going to motivate you.
So because it's a big trip and you've got this thing planned, it makes it really work for it.
Yeah, brilliant, good work.
Well, good luck on that anyway. Thank you for joining us on the show. Thanks for my producer, Tyra Roberts. If you've missed any of the previous hours, you can all this hour. You can check it out where you podcast look for The Weekend Collective Sunday at six as next. I'll be back at the same time next weekend and enjoy your evening.
For more from the Weekend Collective, listen live to News Talks it Be weekends from three pm, or follow the podcast on iHeartRadio.