by Scott Pape - June 3rd 2011
“Hi Scott,
“My husband and I bought our home nearly five years ago. We borrowed more than the house was worth, to incorporate our existing debts.
“Since then we’ve refinanced our home loan to purchase a car, and now we’re in a position where we owe approximately $40,000 more than our house is worth.
“We’ve got ourselves into a really bad position, and we want to know what steps we can take to get ourselves out of this mess!”
Barefoot:
Lots of people are in your position – it’s called mortgage stress.
The fact is that you shouldn’t have bought your home in the first place – you had no savings, and you had a history of spending money you didn’t have. But until now you got away with it.
Your problems have been masked by a rising property market. Each time you did something dumb you went back to your home and used it like an ATM machine.
Those days are over.
The person that stares at you in the mirror each morning is the only person who can change things. You need to change your behaviour and make some tough decisions.
Like what?
Sell the car. You can’t afford it. Buy something you can. Take an extra job. Each. Watch every dollar. Get a Mojo (emergency) fund of $2,000.
If you decide you’re not fully prepared to do whatever it takes, you’ll need to sell your home, and go back to renting.
Right now you’re at the crossroads – it can either be the making of you or the (financial) end of you. Over to you.
The Three Letters
The Worried Mother
The Bankrupt Businessman
The Stressed Homeowner
Reading through emails like these makes me incredibly sad.
I’ve been accused in the past for being ‘unnecessarily gloomy’ about the economic climate.
If that’s true, I apologize. I don’t attempt to read the economic tealeaves, and besides I’m a firm believer that anyone can win, regardless of what Craig James says on the telly.
Yet too many people struggle when the economy has a pullback like the one we’re having now – due a combination of too much debt and the fact that none of us were taught anything about money when we were kids.
Yet years of doing this has shown me that people can pull themselves out of a pickle, and often it’s the one’s who get hit the hardest that come back the strongest.
Tread Your Own Path!
Photo: http://www.flickr.com/photos/night86mare/2746175209/
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14 comments
Dear Stressed Homeowner
Ever considered renting a room in your home? this could give you approx $600.00 per month and you don’t have to feed them. Pay this money off you loan each month. I would encourage you NOT to sell and encourage you to STOP spending.
What a great response from Scott to the ‘The Stressed Homeowner’. It’s about time people like that hear the truth because they have been lying to themselves for years. They wanted their own house and a fancy car so they could show off to their friends and feel good about themselves and they never gave a thought to their finances or their future. I am glad people like this end up losing their house and everything they own. If you spend your 20′s spending, you’ll spend your 30′s regretting and you’ll spend your 40′s broke. Those that are too dumb to understand this when they are 20, deserve everything they get.
Chris, What an incredibly insensitive and obnoxious comment. You know nothing of those peoples situation and have no idea of their motivation for the house and car. To say that those in distress, deserve what they get lacks compassion and demosnstrates only that you are narrow minded and arrogant. Perhaps one day you will fall from the pedestal where you have perched yourself…….Karma has a way of finding people like you!
Kathleen, so this is just bad luck and you are a victim of someone else’s decisions? You make your own choices, and so you should be responsible for their consequences. Let me guess you are the type of idiot that when the bank says they can lend you $650k you actually borrow the whole $650k. Any idiot knows the bank wants your money and doesn’t give a toss about whether it will send you bankrupt or not. They are guaranteed their money either way. Here’s a quick tip for the uneducated like you. When the bank says they will lend you up to $650k, take it as given that you shouldn’t be borrowing more than $350k, otherwise you’ll likely go broke. That is unless, having a big house and fancy cars is more important to you than having $30 to buy your kids school shoes. You make your choices, live with it.
No one forced these guys to buy at peak prices with no money down.
They have to tale responsibility which i think is the crux of your argument.
This is going to be very very common over the next 2 years.
By the way your not being a gloomy gus about the economy. Like a few others you have seen what is coming like a great big wave about to hit… others are still at the beach trying to get off the wave.
too late.
TM.
Why don’t you sell your backyard? You are probably too tired ti tend to the garden anyway, so sell the backyard and pay that moeny off your mortgage. Then if you aare still desperate, you can rent out your house for a bit and go and live with your Parents or in a tent or a caravan. Use the money to save to pay down your debt. You could even giev your Parents some of the rent money to say thanks and use the rest of the rent money to pay the mortagae down. Its a bit of a pain but it’s betetr than losing everything
That is naturally assuming you havent got yourself a McMansion which has no back (or front or side) yard.
Well said Mainlander
I have been telling my kids using similar language that they can understand along these lines.
You can only surf the debt wave for a small while then the wave dumps you. How hard you get dumped depends on how high the debt wave got. They get it & they’re teenagers 0:)
Thank you Louie2u, I am a Gen X who worked through the Dot.com Bubble I have seen all this before but over a quicker timespan.
So good you are educating your kids about money and in simple terms. Financial language is complex for a reason. But really either your in debt or your not, simple.
You might also find the website at macrobusiness.com.au of interest.
TM.
Your first step is to take a serious look at yourselves. Where does the money go? Look at what you buy. You need to identify where the money goes before you think about how to generate more money else you are only sticking a bandaid on the problem.
Humans be nature adjust their lifestyle to their wallet so if you dont work out what you spend money on, if you got a second job you would find that money would also vanish.
IF you are in a position to afford your house you should easily be able to identify ways to cut back on the spending. Foxtel, entertainment, restaurants, holidays even broadband and mobile phones. The first 4 are luxuries that should be culled until you can afford them. The second 2, access your usage. Are you paying for a more expensive plan than you need? Is there a better deal for you (For example if you are a light user then pre-paid 365day plan may be more practical than a normal 30 day pre-paid and far cheaper than a $15pm plan)
If you cant make cuts then you need to get out. You will never be able to climb the mountain to financial independence if you are drowning under a mortgage which is too big to handle.
There is a pin prick of late at the end of the debt tunnel, are you willing to take the long hard journey to reach it?
@jane
I am 36 and at the age of 34, I bought my 750k house outright with no mortgage. I don’t have a TV, let alone foxtel. I don’t go anywhere on holidays. My only “entertainment” is internet surfing and eating out three times a week. Sometimes I wonder whether I have been too frugal and should be enjoying life more with a bit of financial pain.
Bravo you, I am 53 and it took me to 51 to get a property, it is a modest little 2 bedroom flat with a garden but it is mine (or will be in 7 years). It impresses no-one but renos (over time) will make it deadly.
I drive a 10 year old car, and when that dies I am buying a bike (goodbye thunderthighs). I agree with everything you say. I don’t know why people buy so large at the beginning except for one reason, the stamp duty is stopping people from buying and selling up so they can progress their property in tandem with their income. Whenever I think of upgrading I look at the stamp duty and that stops me from even considering it. I stress about my renovations but not how to pay for them so lower your expectations and enjoy your life and your family. I have no regrets about renting whilst my son was growing (he is now 28) because my time with him was irreplaceable, a house is not.
Have a lovely day
Kind regards
PS: bravo was to support Scott’s comments I was not being sarcastic towards the writers troubles. I nearly went bankrupt when my son was little, so I am aware of your fear, and why my tastes are now so modest.
can you advise please on the best interest rates and with who as im thinking of changing lenders, possibly refinance to lower interest rates. Currently with cba and paying $7,000.00 a month interest split between a mortgage and a line of credit.