November 10, 2008 at 6:18 am #245919VanessaMember
Ok I want to start a thread (and I hope I am not creating a duplicate here) that people can add to on how to get rid of that horrible mortgage (and could also be used for other debts) as quick as possible.
In my opinion, my mortgage is probably the biggest thing that keeps me working full time (the need for good money coming in), and stops me from doing the things that I really want to do (growing lots of my own food, and doing lots of pottering about the place), so the quicker it is paid off the better it will be.
So there is a couple of reasons for starting this thread the first is as I said above, I know there are a lot of people here who would like to live more sustainably (or at least differently to what they do) but due to the time commitments of working full time to pay the bills it is just not feasible. The other reason is that a cousin of mine has just had her 3rd little girl on Friday and they are currently renting a 2 bedroom house (will get quite cramped with the five of them before too long) but wanting to by a bigger house of their own soon, so I hope to pass on some tips to them once that eventuates.
So here goes, heres what I can think of off the top of my head:
When looking for a home ignore all the bells and whistles unless you really will need/use them. For me I found it was better for me to go for a standard variable homeloan with a redraw facility ($25 fee if I ever need to redraw) rather than an offset account or line of credit because these had extra charges for something I hope to not use.
Dont make monthly payments, make them either fortnightly or weekly, to coincide with when you get paid, (I did do the calculations and you really dont save anything by paying weekly if you get paid fortnightly) There is 4.3 weeks to a month on average, so you will end up with at least two months a year where you make 3 payments (if you are fortnightly) rather than the normal 2 payments
Unless you are really strapped for cash never make the minimum repayment.
– round your normal payment up to the next $10, $50, $100 what ever you can afford i.e. if your min payment is $628 round it up to $630 or $650 or $700 if you can afford it (this will also mean that you dont have to worry about redoing the budget if rates rise)
If you come across extra money which isn’t expected and/or allocated to something (tax refund, baby bonus, rebates, inheritance etc) put it into your homeloan, everything extra you pay off comes off the principle.
After your interest is calculated and added to your loan make an internet transfer to “neaten” the balance. ie if the Balance after the interest is added, is $252,627.09 make a transfer for $7.09 or $27.09 those little bits will end up adding up, and the figure is easier to remember – that is if you want to remember it.
What else do people have to add??November 10, 2008 at 11:40 am #378287beccaMember
Our home loan providor has just passed on all the rate cuts so far and will almost certainly pass on the 0.75% announced the other day. Our minimum repayment has therefore gone down, but we’re keeping the repayments the same, which means we don’t notice the difference but we’re paying off more every month. The week/fortnight thing is also a good idea, and as of January we’ll be paying every week instead of per month.
To make it easier to make an extra payment, we were also given a card when we took out the loan, which we can use to make cash deposits at any post office. Means that we can just put in extra whenever we want. See if it’s an option for you, or if you can direct credit online.
Also it’s a great help if you can get extra statements. We can get one free of charge whenever we ask, in addition to the two we get per year. The statements won’t save you money, but they do show you how much you’re knocking off and can be a great motivating tool!November 10, 2008 at 12:04 pm #378288mountainmumMember
We used to put ALL of our wages into the home loan, then use redraw if we wanted money out (makes you really decide if you would rather pay it off the loan or spend it) Also we paid for all bills, groceries etc with credit card, then paid it off in full each month– no interest, but the money sat in our loan longer working for us.
Worked really well for us,though we were really motivated too.
(Anita Bell has a good book- how to pay off your mortgage in 5 years, full of living simply style tips! )November 10, 2008 at 12:13 pm #378289djcMember
Check If your interest is added daily or yearly.Daily is better. As I do most of my weekly shopping with cash I get a set amount out each week and any thing that’s left goes off the mortgage. Also if your not tied into a set period shop around for a better rate – we change about every two yearsNovember 11, 2008 at 11:10 pm #378290Eira ClaptonMember
I discovered that I can transfer money directly from my bank account to my mortgage account (this is not something they advertise). I have found that it helps to put even small amounts of extra cash into it.
We bought our first home (and our last!) after 20 years of marriage. There was a lot of expense on it whilst our children were hitting the expensive teenage years.
There was a real breakthrough for us when our neighbour wanted to purchase a small part of our block -really helped us to get ahead on the mortgage. Might be an option for some people.
My neice’s husband bought an older house on a large block, divided the block and sold a small unit on it. This has provided them with a big help to their mortgage.November 11, 2008 at 11:41 pm #378291Michelle-smMember
Sell anything that you don’t really need and put the cash on your mortgage. It’s amazing what you can sell on ebay and how much people are willing to pay for it!!
Every little bit helps.
Beware of revolving line of credit, unless you are supremely disciplined like mountainmum, they can get you into all sorts of problems. I have friends who now owe much more than they originally paid for their house because they just can’t reign in their spending.November 11, 2008 at 11:50 pm #378292jacrossMember
We have a living account which all our weekly expenses, groceries etc come out of. the night before our pay goes in I empty what is left into the loan account. Its added up to a tidy extra 2 payments so far this year.November 12, 2008 at 12:03 am #378293KarmaMember
We have our mortgage with a non bank lender and had a substantial amount in our redraw (all our spare money) to bring down the interest we were paying. With the way things are going I have become concerned about having all our money in the mortgage should something happen to that lender, so I have withdrawn it and am going to put it into a term deposit with a bank and pay the interest received monthly off our mortgage.
My feeling is that it is safer in a bank, would be interesting to hear others thoughts on this.November 12, 2008 at 12:06 am #378294AnissaMember
We fixed our home loan in May 2005 for 5 years at 6.99%. You can make extra repayments of upto $10,000 on a fix rate loan as well. But you can’t redraw. Crossing our fingers that the rates are low when the fixed period finishes.
There is another thread on the site about budgeting. To really get modivated but a notebook and pen that you can fit in your pocket and keep it with you. Write down every cent that you spend for a month. Just doing that will make you think about what you buy. Then at the end of the month have a good look at where your money is going. You will be surprised how much those impulse buys add up. But rejoyce in the fact that little impulse payments to your home loan add up too!!November 12, 2008 at 12:32 am #378295pxdaveMember
no offsets for us, that is too much like a a never ending line of credit that is great business for the banks but not great for paying off quickly unless you are really disciplined.
Our mortgage has slightly less flexibility/frills but comes with a slightly lower interest rate as reward. We can pay extra off anytime but if we want to re-draw on those extra payments we get hit with a fee, a nice deterrant that still gives us access in an emergency. Interest on mortgage is calculated daily which is important, so any extra payments have immediate benefit.
End result is I run a tight budget, pay extra into the mortgage when I can, because I am paid monthly it means we run tight some months but mortgage is for ever shrinking.November 12, 2008 at 12:54 am #378296AnonymousInactive
One thing I found for us that has worked well.. now that we don’t have a mortgage (for the time being)
Get all your debts rolled into one.. payment, and then just pay as much as you can off it.. we have one debt now which was made up of about 5 smaller ones, including credit cards.. which have been cut up and now long longer have them 🙂
Easily every month we are doubling what we need to pay off it.. To start with I tried to pay more off in a month than what the interest was.. This may be harder on big loans though 🙂November 12, 2008 at 12:54 am #378297MichPMember
We recently refinanced one tip that the banks dont openly advetise is that if you are borrowing over a certain amount (around $250000 I think) then they will give you a reduced interest rate…if you ask. So your interest rate is always lower than the standard for the life of the loan. Dont just assume that the standard rate is what you have to have, negotiate.
We also have an offest account so all our money goes into that which reduces the balance when interest is calcuated.November 12, 2008 at 2:56 am #378298osakasuzMember
It pays to double check everything too – keeping a little spreadsheet or a program like Quicken will help you to keep track of how it is all going. It also helps you to make sure the bank doesn’t make any errors.November 12, 2008 at 12:34 pm #378299marigoldMember
M-Shirley, have to agree that the bank would be safer given the governments guarantee, unless your mortgage provider qualifies also.
However, don’t forget that you will have to pay income tax on that interest. Otherwise you might get a nasty surprise come tax time.November 12, 2008 at 11:00 pm #3783001626Member
A good rule of thumb is that for every $ you borrow you have to pay back $$, so therefore for everything that you buy rather than use to reduce debt the true cost is actually double the purchase cost.
Or the $3 takeout coffee purchased for $3 has a true cost of $6, the $10 t-shirt costs $20 etc. This does make you stop and think about what you are buying, David Bach also refers to it as the “latte factor”
Split your salary and have your employer pay the mortgage from your salary before you get paid.
Underpay tax and increase your payment, when you get your tax bill, you don’t have to pay it until next March redraw the money from mortgage and pay, your money has been working for you not the government.
Yearly payments like car insurance, house and contents and building insurance, rego, life insurance etc, add to mortgage repayments and redraw as lump sum.
These are just IMHO and please check with your financial advisor
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