Huh?

 

Let me explain.

 

Most people think their monthly mortgage repayment is an expense.

 

But I want to give you a fresh perspective.

 

Instead of thinking of your mortgage repayment as an expense. Think of it as a ‘bucket allocation’. Just like you would if you’re allocating some of your income to an emergency fund or share portfolio.

 

Why?

 

Because when you’re paying a mortgage, you’re allocating some of your income into an asset. And you’re increasing your ownership in that asset over time.

 

But you can’t consider the whole monthly mortgage repayments as a bucket allocation…

 

And this is because it doesn’t all go towards building your equity in the asset.

 

Where does the majority of your mortgage repayments go in the early years?

 

Towards paying the interest on the money you borrowed.

 

 

Do you know how much interest you’re paying to your lender each month?

 

If I use one of my clients as an example. They have a $1 million mortgage. Their repayments are $7,000 per month. That may seem high, but they’re successful business owners with strong cashflow.

 

Their interest payment (the REAL expense) is $5,300 per month. This means they’re increasing their ownership in their asset (their home) by $1,700 per month.

 

Mortgage Repayment = $7,000 (the bucket allocation)

 

Interest payment = $5,300 (the REAL expense you pay to the lender)

 

Mortgage Repayment – Interest Payment = $1,700 (your increase in equity)

 

Make sense?

 

So when you’re tracking your end of month numbers. Make sure you also track the ‘interest payment’ on your mortgage.

 

Because this is the REAL expense.

Have a great day,