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!

[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.

[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.

[Winter]

Thanks Eluned - I transfered just over half from the emergency fund into the mortgage, this way I am covering my bases. I love internet banking!

Fionas - I've bought myself a meal planner pad from kikki.K so am going to get stuck right into that in the new year. Have an extra freezer & slow cooker so can fill that up too.

I'm going to have to set up the set amount each month for DH & I. We've been talking about it for ages. How much do people normally allocate themselves?

[fionas]

We have about an eighth of our joint fortnightly income each as our pocket money or a quarter of it in total.

TBH, that's probably too much- we could live on less.

But the trick is making it an amount that is not too restrictive. If you make it too frugal then one partner will end up resenting it and start putting stuff on the credit card when they run out of money. Then the other partner starts thinking, "hang on, why should I just live off my pocket money if they're shoving stuff on the credit card."

That's what happened in this house anyway but we're back with the program now.

Although the amount we give each other is generous, it does mean that we can save up for our own 'me' stuff too. I never have to justify clothes/haircuts because I pay for them out of money I've saved from my pocket money. Likewise DP with beer/model trains etc.

[Laranna]

I also second the idea of having pocket money each. It just gives that bit of extra freedom so you don't feel like you never have any money to spend if you see a cute top or need to go to the hairdresser, etc. And like Fiona says, you don't have to be accountable for what you buy with your pocket money!

[lizh]

Hi

Things I have done to boost the mortgage are:

1. payroll puts my salary directly into the mortgage, that way we are forced to live off one wage
2. salary sacrifice can mean extra money each fortnight
3. draw up a spreadsheet so that you can keep on track and keep you motivated
4. put any extras such as leave loading, tax refunds etc into the mortgage.

I think that aim is to pay it off within 10 years. To pay it off any quicker means you don't save that much in interest and therefore you are better off at considering investing the extra money. Speak to your financial advisor it wont be a waste of time.


I hope that helps.

[Muppity]

Anita Bell's book is great. You have to take some of it with a grain or salt (seriously - there are some things that I will not do to pay off my mortgage a bit earlier) but many of the ideas that she has are wonderful. I do know someone who used her book as a bible and paid off their mortgage after about 4 1/2 years - but I feel that I made a contribution because if I hadn't paid for it every time we wouldn't have gone out for a coffee in that entire time that she was paying off the house.

[~Kaz~]

Wow Muppity - that's a huge amount of willpower your friend has to stick to that (supremely low) level of spending for 4.5 years. I reckon you did help out by shouting the odd coffee here and there!!

Lizh's post reminded me - I also have a little over half of my fortnightly pay going directly off the mortgage. It really helps to never see that money in my own account and just live off what is left.

[maddison]

I would also check if there are any penalties for paying your loan out early. Sometimes its better to leave just a few dollars owing instead of paying it out... When the time comes. Then you can still redraw from it if you do find yourself in an emergency.

[Winter]

Wow Muppity, that's a huge effort! I don't think I'm prepared to sacrifice everything just yet & I would feel terrible making my friends buy me coffee! Well, maybe not if I made & brought along a cake!

Thanks for the tip about penalties and leaving a few dollars owing Maddisun.

I am going to become a cheapskate extraordinaire!!

[Astrid]

But the trick is making it an amount that is not too restrictive. If you make it too frugal then one partner will end up resenting it and start putting stuff on the credit card when they run out of money. Then the other partner starts thinking, "hang on, why should I just live off my pocket money if they're shoving stuff on the credit card."

That's what happened in this house anyway but we're back with the program now.

Yep that is what happens here. It is actually cheaper to pay the interest on DH's maxxed out credit card, than to have it clear. I finally cleared it and now with everything, it is almost maxxed again in less than a month

Anita Bell's book is great. You have to take some of it with a grain or salt (seriously - there are some things that I will not do to pay off my mortgage a bit earlier) but many of the ideas that she has are wonderful. I do know someone who used her book as a bible and paid off their mortgage after about 4 1/2 years - but I feel that I made a contribution because if I hadn't paid for it every time we wouldn't have gone out for a coffee in that entire time that she was paying off the house.

OMG that is so wrong. Good on her for paying off her mortgage, but not at the expense of others. Hope she gave all her friends a big party at the end of it all to thank them for their contributions.

[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.