Barefoot Investor’s top advice for homeowners locked in a mortgage prison

The dream of owning your first home is a lot like parenting a newborn, says Scott Pape - the thrill rubs off disturbingly quickly and then the reality of the responsibility sets in.

The email came through with the subject line ‘REGRET’.

Scott,

My partner and I are both professionals in our early thirties. We bought a house last year and we hate it.

We are struggling to adapt to a slower pace of life in the suburbs and have learnt we don’t need as much space as we thought we did. We feel stupid for spending a ton of money on something we can’t stand.

What are our options?”

Erica

Strewth!

There’s more emotion in Erica’s email than a midnight meltdown from my 18-month old:

They hate their new home … they feel stupid … they can’t stand it.

Well, the dream of owning your first home is a lot like parenting a newborn … the thrill rubs off disturbingly quickly … and then the reality of the responsibility sets in:

I’ve signed up for a lifetime of this?!

It’s not hard to understand why Erica is spitting the dummy.

This time last year everyone was FOMO-ing off their face. Interest rates were at all-time lows. The Reserve Bank had committed to no rate rises till 2024. Property prices had risen 30% since Covid. And that’s when Erica and her partner got property-pregnant. And that’s also when everything changed.

This time last year everyone was FOMO-ing off their face. interest rates were at an all-time low and property prices had risen 30% since Covid.

Today, the value of her property is going down, and the cost of her mortgage is going up. Way up. In the last three months her repayments have shot up by an extra $565 a month (based on a $600,000 loan).

And some experts are warning that house prices could drop by as much as 25%, leaving people like Erica who bought at the top in a ‘Mortgage Prison’ and unable to refinance their loan in a few years.

So what should Erica do?

Well, my advice would be to stop listening to experts about the economy. As a new property-parent you have zero fluffs to give. All it will do is freak you out and psyche you out.

I know you think you’ll never make it. But you will. You’ll grind it out, meet your mortgage repayments, and eventually get ahead. And then, in a few years, you’ll have forgotten about all the pain you went through, and you’ll trade up your family and do it all over again!

Tread Your Own Path!

CHILLED TO THE BONE

Scott,

I felt chilled to the bone when I read about that poor family who lost their house deposit to scammers. Is there anything we can do for them? They have seven kids! It just doesn’t seem fair that the bank would only refund them $5000 and the cops say ‘too bad’. There has to be justice!

Raj

Last year Aussies lost $227 million to payment redirection scams.

Hi Raj,

I feel like I need to take a cold bath and scrub myself clean after the week I’ve had.

I’ve been inundated by readers sharing their scam stories with me. I also spent the week researching what could be done.

Here are some back-of-the-envelope calculations:

Last year Aussies lost $227 million to payment redirection scams. Yet we also know that roughly a third of people are too embarrassed to report they’ve been duped, so let’s call it $300 million.

Five years ago banks in the Netherlands introduced account name checking and it reduced this type of fraud by a staggering 81%! So that would save consumers a massive $243,000,000.

Yet that’s the customers’ money, and who gives a toss about them?

So let’s look at it from the bank’s perspective.

How many of the bank’s staff hours are chewed up dealing with those $300 million in losses?

From chasing the scammers, to dealing with the heartbreak of customers who lost their life savings, and even sometimes, maybe, kinda, partly refunding them.

It’d have to cost the banks tens of millions, at least.

It seems like common sense to me. Kind of like, if your bank makes you give them the account name of the person you’re transferring money to – it’s because they’re actually going to cross-check it.

So I had a commonsense chat with Stephen Jones, the Minister for Financial Services, this week.

I asked him if he could, say, get all the bank chiefs in a headlock and not let them go until they all agreed to check account names, and in doing so save their customers as much as $243 million and untold amounts of heartbreak.

He said that’s a really good question and one that he’ll be asking the banks. But he thought my headlock idea was taking things a little too far. I also gave him the details of the young family with seven kids who were scammed out of their deposit.

Let’s hope commonsense prevails.

CHASING A GHOST

Dear Scott,

Just before Covid hit, I paid a $3000 deposit for a new fence. Then Covid hit, and everything stopped.

After restrictions were lifted we got in contact with the fencer and he started all the excuses under the sun about why he wasn’t able to start the job. He finally admitted he was not going to do it. We asked for our deposit back, we still have not got it. We have told him we will take the matter to small claims court but this has made no difference to him. The trouble is we only have his first name, his bank account details, his phone number and his company name. What can I do?

Danielle

Sometimes it’s best to put your energy into finding a good tradie to do a job than trying to recover a deposit from one who has ripped you off.

Hi Danielle,

You can do an ASIC search on his company name and find his registered details, and with that possibly take him to a small claims tribunal (like VCAT in Victoria).

So by all means, give it a go.

Having said that, he sounds like a crook. And it also sounds like this isn’t his first rodeo. So you could end up spending a lot of time, energy and emotion chasing this guy … and you still may never get the money back.

Look, I don’t want to sound too woo-woo, but sometimes you just have to let these things go …

So if it were me, I’d put that energy into finding a good tradie who’ll build you a good fence.

(And know that, one day, that guy’s going to get his nuts nailed to a fence.)

WE RETIRED ON THE AMOUNT YOU SUGGESTED ...

Hi Scott,

I read your ‘How much you really need for your retirement?’ column a few weeks ago, and I cut the article out and pinned it on my office wall at home. It made me feel amazing, and I breathed a sigh of relief. My husband and I retired with around the amount you mentioned in your column. Now, three years on, we are going well. We have been on a road trip to Darwin, and we enjoy the simple things like catching up with family and friends. Our cup is full. It’s not about what you have, but about who you have in your life. Thank you.

Lara

Hi Lara,

No, thank you! You’re living proof that the ‘million dollar myth’ is just that.

I got smashed with negative responses, but this one from Divya, a pre-retiree, made it all worthwhile:

“I am an immigrant from a poor background, and I used to feel paralysed and ashamed that I ‘have not made it’. That shame translated into me not taking productive action about my wealth. Yet I now realise that I’m actually doing well financially, maybe even very well, and that it’s worth respecting the efforts I’ve put in over the past 10 years, and taking care of what I’ve got! Thank you from the bottom of my heart.”

Here’s to everyone working hard, saving hard, and nailing their realistic retirement number!

.

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

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