One step forward, two steps back

Last weekend we made an interesting decision. As you’ll probably know if you’ve read some of our story and any of our net worth posts, we are aiming to pay off our mortgage and get out of debt as quickly as possible.

But, this past week, we’ve taken on an extra $40,000 in mortgage debt. Well, we haven’t actually taken on a cent yet, but I’ll get to that. Basically, we’re sick of living in a cold house.

To be fair, our house is not that cold compared with many kiwis who are doing it tough or have unhelpful landlords. We have a heat pump. We have double glazing. We have ceiling and floor insulation. Some of our walls are insulated. Our house gets warmer every year due to the changes we make and this winter has been warmer for us than any previous winter. In fact, we haven’t even had to break out the supplementary heater we used to use to top things up on those freezing nights when the heat pump by itself just wasn’t enough to warm the whole house.

Maybe it’s working from home. My home office is on the side of the house that doesn’t get full sun until mid-afternoon. I’m sitting there all morning with double layers of socks and a thick hoodie on, with freezing fingers and toes. The door has to be shut to keep the kids out, but it keeps the warm air from the other side of the house out too. The logical (and much cheaper) solution would be to just put the heater in this room, and as you’ll see it’s not too late for that, but we have other reasons for wanting to get renovating.

We want to enjoy this place while we’re here. Especially in the likely scenario I’m going to be allowed to work from home more often when this pandemic finally ends. At the moment we have sliding doors that open out into blank space because we demolished the dangerous deck that came with the house. We have draughty front and back doors. Our garage roof is rusty and we have to carefully place anything important that’s stored in our garage so it doesn’t get wet on stormy nights.

We just want to finish this house. We want to finish it, then it will be done. A lot of this is work we were planning to do anyway. We were always going to build the deck at some point. We were going to carpet most of the house at some point. We were just planning to save up to do it. None of these things by themselves will provide a lot of return in terms of adding value to the property and collectively they’ll add a little bit but nothing like what they’ll cost to implement.

But given this is money we were planning to spend at some point anyway, we figure if we add value worth even 25% of what we spend, we’ll be doing okay. Debt is cheap right now. The debt we’ve taken on isn’t the cheapest debt ever. We could have taken out a home loan with a fixed rate well below 3%. Instead we took on a revolving credit loan with a rate of 4.05%. Why? Because we’re not planning to spend all this money at once. It could be a couple of years before even half of it is spent. We don’t want our house crawling with tradies while we’re trying to raise a family, so we’re going to largely be doing one thing at a time.

Always having a project on the go will keep us interested, it’ll keep the debt minimal, it’ll give us things to look forward to and it’ll keep it manageable. At some points we’ll be paying back the loan faster than we draw it down. Other times we’ll be drawing down a lot very quickly. Importantly, right now we have a facility to borrow $40k and we’re not going to pay a cent in interest in the next month because we haven’t used it yet. If it were a regular home loan we’d be paying interest no matter what. So despite the higher rate, I do expect we’ll come out better off this way.

It’s definitely not the FI move. It will take longer to get to zero debt this way. But we’ll enjoy the ride more. Dragging it out is key for us. Shiny new things get boring quickly. The grass is always greener so we want to spread these projects out to prevent us being tempted to spend on other things that we haven’t ever had any plans to do.

How about you? Have low interest rates got you tempted to spend some money like the Reserve Bank wants you to? Or are you doing better than us and managing to keep your hands away from it? 🙂

Comment Policy: For this blog, I’ve implemented a Comment with Kindness policy. You can read more about it here, but the gist of it is: Follow what I call the “Grandma Rule”. If you wouldn’t take that tone with your grandma, your comment probably won’t make it through moderation.

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