Your coffee habit could be keeping you in mortgage debt

Your daily coffee habit could be keeping you locked into your mortgage for much longer than necessary, according to Nicole Pedersen-McKinnon, finance educator, commentator, and ASIC ambassador.    

“Your tastes may run to cappuccino, which figures from the Skip ordering app suggest is most common in Sydney and South Australia. Perhaps your hot beverage of choice is the flat white, as in the ACT, Queensland and Western Australia. Or maybe – most likely in Victoria and Tasmania – you're a latte lover,” Pedersen-McKinnon said.

Regardless of your preference, a seemingly innocuous $4 coffee each day adds up after a full year – to the tune of $1,460 after 365 days.

“I've also assumed you hold the average Aussie 25-year home loan of $376,200 at the Mozo-calculated average rate of 4.9 per cent,” Pedersen-McKinnon said. “Well, if you redirected [your coffee expenditure] to your mortgage … you'd slash your interest bill by almost $31,000 … and crucially get out of debt two years and five months early.”

It’s not just the money. Keeping off coffee for the remainder of the hypothetical mortgage –  22 years and 7 months – equates to saving 154 minutes each day, or more than 2.5 hours.

Not that Pedersen-McKinnon expects homeowners to give up coffee completely. “You could even retain the presumably pleasurable habit by buying one of those fancy-shmancy DIY coffee machines, the likes of which George Clooney spruiks,” she said.

“Push the boat out and pay $600 for it, and you'd still only need to drink 150 cups (which at one-a-day would take roughly five months) before the cost would drop to the price of the ingredients alone.”

Striving to achieve a superior financial position by cutting back on certain luxuries can be a hard-to-maintain goal. “However, think about your frequent indulgences not in terms of potential money savings but time savings, and you may well find the motivation to curb them,” Pedersen-McKinnon said.

With many analysts predicting a looming mortgage crisis and decrying the high levels of household debt in Australia, it’s wise for borrowers to cut back on certain luxuries and focus on paying off mortgage debt sooner.

“And with rates at record lows, for now, it's never been cheaper,” she added.