Need some mortgage busting advice...

[Winter]

I have a goal: I want to pay my mortgage off in 8 years. So that's the task. Help me get there. Give me your best mortgage busting tips!

We pay the mortgage monthly as DH is paid monthly. We have been paying extra each month but I am going to try to double it - hence the never spending any money ever again challenge! Any extra money left over at the end of the month gets added into the mortgage payment, which makes me try really hard to have savings. I transfer any bonus money ie tax refunds, cash-back cheques, interest, money from piggy bank, etc onto the mortgage as I get it. I love watching even $10 extra make the mortgage shrink!

We have savings in an account for Emergencies. Our loan has unlimited redraw facilities. Am I better off putting those savings into the mortgage or keeping them handy just in case? I can never decide on this point. We also have CC that I pay off each month so realistically, if life went pear shaped, I would have access to cash quickly. But what if DH or I died? Would either of us be able to redraw when loan is in joint names - wouldn't it start getting tricky then? Horrible thought but its an Emergency savings account for Emergencies so should I be a good boy scout or put it in the mortage???

I pay DD pocket money at the rate of $50 a month with the intent that it helps her with uni or a house deposit one day down the track. Am I better off putting that $600 a year into the mortgage and then helping her out later on? I feel like I would be robbing her. What do you think? I know $50 a month is a lot but it works out to be about $11,000 by the time she is 18. Looking at it that way, in 18 years 11K will be woth nothing, but an extra $600 a year now on the mortgage would make a real difference. What about compound interest though?

Would love some thoughts...

[Pandora]

Id go speak to a financial planner, they're in the best position to advise you.

Your still getting interest on your money by having it in your mortgage - you're effectively making whatever your interest rate is on any additional funds.

Can you have your emergency acct as an offset account to your mortgage?

REdrwaring depends on how its set up, with ours they mortgage is in both names and the redraw goes in to a joint account, so ither of us can do it.

If your mortgage is paid off in 8 years, you still have 10 years to get to 11K and I dare say you'll have more money to put in there each month by then?

[Megan]

With the emergency fund, you could put that in a 100% offset account so that you have quick access to the money, but it still reduces the amount of interest you pay on your loan.
In regards to if you or DH died, all accounts would be frozen (if in joint names) anyway, so you wouldn't be able to access anything for a while. I know 2 people this has happened to and both had to borrow money and rely on others for meals and to pay bills until the legal side of things was sorted out.
Would be wonderful to be mortgage free in 8 years. You have made me want to get motivated to do something about mine!

[Winter]

Hey Megan - We'd love an offset account but we'd have to refinance and to be honest, the loan we have now has been really good to us. They have kept the interest rate lower than the big 4 by about 0.7 percent which is fairly significant.

You have got me thinking with the Emg acct being in joint names. It is. Which means it might be frozen in case of death....hmmmm...might have to stop into the bank and ask some questions. Not point having an emergency fund if it can't be accessed in the worst case scenario.

Hey RayRay - I think you're right about DD's pocket money....poor darling. I feel bad cleaning out her stash....but you're right. I'm going to do it quickly, like ripping off a bandaid - here I go.... I left her $50 so I didn't clean her out completely! I feel bad...

[~Kaz~]

Don't feel bad Winter. Owning your own home sooner will give you (and therefore her) so much more security. If you reach your goal, like Ray said, you'll still have plenty of time to build her education/home fund. Check how much interest that extra $600 a year will save you and the time it will knock of your mortgage in an online mortgage calculator. Bet its significant.

There's actually a book written by a woman - think her last name is Bell (???) Not sure on that. Anyway - it's called How to Pay off your mortgage in 7 years (by somebody who did it in 5). Or something like that. It's got heaps of money saving tips and tricks. She's an accountant so some of the money calculations get a bit anal (IMHO) like whether it was financially worth it to buy a deep freeze to buy wholesale/bulk meat and how long it would take the freezer to pay for itself in meat savings etc but there are some good ideas in there. Your local library might have a copy?

[Winter]

Thanks Kaz, I'll have to have a look for it. I'd love to do it in 5 years! I don't think I can and still eat!

[Laranna]

You'll find that all the accounts would be frozen in the event of death. Definitely talk to your bank about that. If your mortgage interest rate is higher than the emergency savings account interest rate and you don't get charged any fees (or very little) for redrawing, then I'd be inclined to stick it all onto the mortgage because you'd be saving more in the interest.

That book Kaz mentions is by Anita Bell. If you google her, it will come up. I agree she tends to be a bit anal about some things, at the end of the day it's how much you are willing to sacrifice lifestyle wise in the short term.

[fionas]

They have kept the interest rate lower than the big 4 by about 0.7 percent which is fairly significant. (

This reminds me. Our bank gives us a 0.7 discount off the standard interest rate on what they call their wealth package. It's a bit of a misnomer because you actually get it if your mortgage is $250K+ so it should be called a debt package not a wealth package

Now I think I read somewhere that most banks do this - it's pretty standard but sometimes you have to ask them as they may not have done it automatically. So if your mortgage is more than 250K and you don't already have a discounted interest rate, maybe look into it - or ask a mortgage broker.

My biggest tip, which you probably already do is to only give yourself and DH a certain amount of spending money per pay. Everything else bar household spending goes on the mortgage. The best way to reduce household spending for us is meal planning. Less visits to the supermarket, more lunches taken to work and less trips to supermarket = less stuff that we don't need.

[Malyna]

I paid off a house in four years (mind you this was in the early 90s), even before anita bell's book, which I read afterwards.

Put every cent into your mortgage, go shopping at op shops, ride around in your old car, get DH to learn how to service your car, catch a bus/walk/ride a bike whereever you can, pack your own lunch, give yourselves a modest amount for spending (back then it was $20 a fortnight), stretch out hair cuts - I grew my hair long and had a haircut every six months, trimmed the fringe myself sort of thing. Dh would get a crew cut and then only get it cut when it grew too long.

Get rid of the credit cards. We never had one - and we never had a redraw on the mortgage. If something broke, we just did without until we could save up to buy one.

[YoYo]

I know your DH gets paid monthly, but paying it weekly does help reduce the interest charged to you as it is charged DAILY on the balance, so the more often you pay, the better off you are.

DH and I also have an offset which helps reduce the interest payments. We are with BankWest (noticed you are in WA but not sure if you bank with them) and we have a really simple home loan with an unlimited re-draw facility and quite a low interest rate. We didn't have to re-finance to link an offset account to it, so it might be worth finding out if you can. Any amount of money in that savings account will help reduce your mortagage payment too.

With your DD's account, I have a bankwest kids account (with 10% interest or something) can't remember the name of the actual product, but maybe if you look at getting her a higher earning interest account, you can then deposit LESS into it per month. DS's only requires you to deposit a minimum of $25 per month (which I do) or a maximum of $250 per month. I keep it at the minimum and if anyone gives him dosh for b-day or Xmas then I bank it. I also bank the coins I get into it.

If your mortgage is unlimited re-draw, then you can also pay EVERYTHING earned into it (rather than split into another separate savings account) reap the reward of less interest because of it, and pay bills out of it. We did this prior to having the offset account.

The excess in your home loan is basicall savings which you can take out at any time, but it will be helping to contribute to reducing your mortgage at the same time.