Couple's $50,000 shock after mortgage cliff plunge: 'Not made a dent'

A young Aussie homeowner has revealed the staggering amount spent on her mortgage and interest repayments. Interest rates have rapidly increased thanks to the Reserve Bank of Australia’s (RBA) cash rate hikes, adding thousands of dollars per month to the average mortgage.

Ella Maegraith and her husband, Nick, bought land in Adelaide and started building their first home just over two years ago. The 27-year-old content creator told Yahoo Finance their interest rate had nearly tripled since then, adding an extra $1,500 a month to their now $3,920 per month repayments.

“We did have a fixed rate of 2.69 per cent and that was on half of our loan because we built. We’ve only been living in our house for just over a year because we had to pay for the mortgage while we were building and it’s now 6.45 per cent,” Maegraith said.

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She calculated they had spent $76,673.84 on regular repayments, with $50,157.75 of that going towards interest repayments. That means less than 35 per cent of their repayments went towards paying off their actual loan.

The couple were able to make $18,175.29 in extra repayments towards the principal amount of their loan before interest rates increased. In total, they have paid $94,849.13 on their mortgage in the last two years.

She calculated they had repaid $46,825.57 of their principal amount, or about 7 per cent of their $640,000 home loan.

Maegraith said the overall costs were a “hard pill to swallow”.

“Looking back and knowing that for our mortgage, we’re paying an extra $1,500 per month, and it’s not making any difference. It’s just literally going towards interest,” she told Yahoo Finance.

“That was definitely shocking, the overall calculations and knowing how much we paid and we haven’t really made much of a dent in it. We’ve been really lucky we've been able to put extra towards principal.”

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The couple is one of thousands of borrowers who took out a low fixed-rate loan during the pandemic and are now rolling onto much higher variable rates. According to a Finder survey, 27 per cent of borrowers are heading for this “mortgage cliff” in the next 12 months, while a further 21 per cent have already rolled off.

Finder personal finance expert Sarah Megginson said this would be a "massive change” for many borrowers.

“Rates have been rising persistently over the past two years and are 4.25 per cent higher than they were – but this group has been insulated from the sting, as they locked in their loan just before rates started to climb,” she said.

Plans to pay off the loan early

Maegraith said she and her husband currently have a goal of paying off an extra $20,000 on their mortgage by the end of the year.

Maegraith said she was lucky to have increased her earnings through her full-time social media work, while her husband, who is a lawyer, had also received a pay bump.

“We’ve been lucky with pay rises over the last year. Also being conscious of lifestyle inflation and making sure that that money works for us,” she said.

“We track every single dollar that we spend and where it goes. We’re hyper-aware of everything. We choose to shop at Aldi and plan all our meals every single week.”

Maegraith said they are also taking on more work, finding odd jobs and selling things on Facebook Marketplace to make a bit of extra cash where they can, along with challenging themselves to do “no-spend” weeks.

“So not spending anything other than money on essentials. It’s a fun challenge for us. So not spending money on coffee, eating out for one week and the savings from that go towards paying more towards our mortgage,” she said.

Tracking ‘every single dollar’

The Adelaide resident openly shares her and her husband’s budgeting online and says they work off a “zero-based budget” where every dollar has a purpose.

In June, for example, they made $14,203.61 in total income. They spent $1,064.39 on bills including electricity, gas, water and insurance, $77.95 on subscriptions, and $8,423 on their mortgage and car loan.

They spent $2,930 on variable expenses like groceries, petrol, eating out and travel, and $1,683 went towards savings.

In total, half their income went towards paying off debt including their mortgage and extra repayments on their car loan, 11.5 per cent went towards savings, 22 per cent to expenses and 8.5 per cent towards bills.

Maegraith said they would love to have their mortgage paid off by the time they are 40 but this would be an “ideal world”.

“It’s hard to know what interest rates will look like in a couple of years or 10 years time and how much of an impact extra repayments will have,” she said.

“I’m trying to make the most of the money I do have now and make the biggest impact in case our circumstances change or when we have kids our financial situation will be different.”

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