Why I used my house deposit to pay off my HECS-HELP loan

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

So I tweeted this, and followed through today with the largest B-Pay I’ve ever made. Should be confirmed debt-free by the end of the week, at the cost of my house deposit.

 

The short version

A little more supporting reasoning

  • $40,000 is a relative drop in the bucket on a >$720,000 Sydney median house price. (And I’d be hard-pressed to save $30,000 a year just to pay 5% interest-only on $600,000 – a doubling of rates to 10% would wipe me out entirely and 17% from the Hawke/Keating era… I can only dream of earning that on a savings account if I could hold a job in such likely recessionary times).
  • CBA Goalsaver today = 3.81% total interest requiring $200 put in every month, with rates probably continuing to fall while CBA makes more record profits (built on a bubble, not touching our big four’s shares with a 10 foot pole except in my super fund so I can argue that itch is scratched).
  • I’d pay a marginal tax rate of at least 38.5% (inc Medicare Levy) for FY2013-14 (39% in 2014-15, thankfully dodged the $80,000 additional deficit levy but such a shame they didn’t try reforming superannuation which would have hit me, CGT discount which would have tripped me into speculating more, or negative gearing which would have been the best thing I think they could have done, I stand by my previous thoughts that it’s the defining ridiculous misallocation of resources… paying people to lose money… utterly insane), leaving me with 2.34% effective interest on the CBA Goalsaver at most, about 0.5% under inflation.
  • Interest rates on all savings accounts I’ve looked at over the past year or so have continued to meet expectations and fall from well over 4% to the current levels.
  • Commonwealth Government decided to raise rates to the 10 year T-Bond rate, today funnily enough is about 3.81% (an instant rise of 0.9% relative to last year’s indexation of 2.9%).
  • In sum, I would be paying between 1.5% to 3.5% for the optionality of holding my house deposit that is going to struggle to reach a reasonable 20% or $150,000 over the next 6 years anyway (with no price growth or rather a price crash), well up from 0.5% (though that may be long enough for some windfall rebalancing gains to come through if I get lucky with my other investments). But since it’s never going to be enough anyway, I might as well seek the Australian Dream, er Farce in a country that has less red tape stopping developers building houses.
  • Retain some ethical / moral high ground, not one of these.
  • USA is looking more interesting all the time… (it’s also nice when a highly-productive web/Python/Django/Machine Learning first class honours CS degree holder gets offers to be poached by certain technology companies) why should I support a broken system? (though they are at 90% debt to GDP so it looks like the boomers have raided everyone’s cupboards…) 2015’s budget will be very important to actually ending the age of entitlement, but I’m not holding my breath, just continuing to move bits and pieces offshore (with full reporting to the ATO of course).

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