I really do pity the fool who hasn’t heard of the MRTMAD method. Here’s my dirty secret though: Just made it up.
Mortgage Reduction Through More Accumulation of Debt – yip, that’s a thing now as I have an acronym.
The typical mortgage comes out of the box on a 30 year loan term. You’ll pay a phenomenal amount of interest over 30 years – more than the amount you borrowed in the first place. A very natural and rational response is, therefore, to rid yourself of this dirty debt as fast as you possibly can, and there are programmes that can assist you with that. I’ve met many a client who’s come to me after attending an accelerated debt repayment program. A typical 30 year mortgage can more or less be repaid in 7-10 years if you follow the system, employ their coaches and download the app. Essentially all surplus income, after fixed expenses are taken care of, if funnelled into your mortgage, will yield the results – all you need to do is control your spending. There’s a problem with this approach though – most people no matter how hard they try, simply cannot control themselves. When you discover the unicorns among us who only spend what they absolutely have to, and diligently divert the leftovers into their mortgage – inevitably their good work gets washed away by real life: Upgrading properties, renovations, new car purchases, redundancies and having kids.
So yeah – well meaning individuals get the concept, sign up, then inevitably drop out after very mild success. There is another way that works, but it flies counter to these programmes big time, and it’s more than a bit off the beaten track.
Mortgage Reduction Through More Accumulation of Debt. The magic of this method is that it relies on something that’s not you, to work: Property price inflation. Now I’m going to be honest with you here – this is dodgy as, and of course professionally I don’t endorse this approach – I only invented the acronym.
How the MRTMAD method works:
Own your own home, keep the 30 yr mortgage going and don’t worry about it because the growth in the value of the home will far exceed your pathetic ability to reduce the debt. Next, purchase a rental property in a well-established area for the same value as your home. The next step is easy – you do nothing. The tenant pays rent, and this rent may eventually cover the mortgage and you keep slowly reducing your own mortgage too. 10 years later something magical happens – your rental property has doubled in value. Sell the rental, repay all mortgage debt, and there may even be a little bit left over. Job done. I’ve personally arranged mortgage finance for many clients who are in a position 10 years after they purchased their first rental property by using the MRTMAD method. The crazy thing is, they started with a 30 year mortgage, they had kids, they did the reno’s, the unexpected events did happen, and they lived their lives. Tomorrow’s U is very different to how present U can imagine it – the course that you set today will have a massive impact on your ability to handle unexpected events as they occur.
Disclaimer: The traditional way to repay your mortgage aggressively requires faith. Faith that you can stick to a predetermined plan and that nothing unexpected will happen. The MRTMAD method also requires faith, but it’s not faith in your ability to pull you out of debt, it’s faith in the property market. Is it reasonable to assume that the past performance in property values will be sustained for another 10 years? I wonder.
You may have friends (well done!) who are in this fortunate position and you know they own more than one property – whilst they may seem smart for doing so, once you look closely they’re likely very average, everyday people. The cool thing is, they may be in a position already to repay all their debt with selling just one property. You may be that person and if so, well done, because you did what most traditional financial advisers, and even some in your family caution against – getting into debt. Debt has its risks don’t get me wrong, and if you don’t insure against these risks when engaging in the MRTMAD method, you’re absolutely insane.
So you can take the blue pill or the red pill, but you can’t take both. You can’t subscribe to the debt repayment programmes and the MRTMAD method. To succeed with either one, you need to have a very different attitude towards debt, and the property market.
Which method do you subscribe to?
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