A few months ago I wrote a post about how to pay your mortgage off quicker, you can read it here and out of that came a wonderful piece of advice that came from, quite possibly the only reader of that post, if not this blog. Here is Robert’s wisdom and sage home loan advice.
I’ve made a couple of minor edits, grammar, spelling and spruced it up a little, with a touch of colour here and a couple of pictures there. Well the colour anyway!
I hope it can help my other reader.
Hey Fast Lane Dad- your friendly neighbour Robert here. I have a few very useful tips about paying off a mortgage quicker!!!
Now i’m not a financial advisor by any means. AND although this method worked for me it may not work for others.
You need a strong will, a realistic budget and know what your limitations are!
Tip No 1
Most important- HAVE – A – BUDGET, know your limits and STICK – TO – THE – BUDGET!
Tip No 2
Set up a separate bank account, a loan account. Make sure the loan account you set up has a 100% offset account attached to it.
Tip No 3
If possible and budget allows, ask the bank to lend you a little more than you need- this may seem counter-intuitive but it will make sense.- if you need $500K ask for $550K.
Tip No 4
Put the additional funds borrowed in the offset account- DO NOT SPEND IT!
Tip No 5
By borrowing more than required you are now forced to pay back a little extra each week as the bank calculates your repayments based on the total amount borrowed. BUT all of this additional $$$ in repayments is principle and not interest. This works because the balance in your offset account is offset against the balance of your loan.
Tip No 6
Consolidate all your savings accounts/chequing accounts and term deposits into the offset account. All the dollars in the offset account works for you in 3 ways- (a) it reduces the interest you pay on the loan in each payment – so more of each payment is principle. (b) this in turn will decrease the total interest you pay over the life of the loan and you will pay your loan quicker. (c) the interest you save by outing the money in the offset is more than interest you will earn in the term deposit AND any interest saved is TAX FREE, interest earned is taxed at your marginal tax rate.
Tip No 7
Make sure all income goes into the offset account and any windfalls also go into the offset. This could go into the loan but there are advantages in putting the money into the offset account rather than the loan. This is because the putting the balance in the offset is just like putting it in the loan EXCEPT you can redraw on it come a rainy day (ie emergencies) AND as opposed to redrawing on the loan- redrawing on the offset is TAX EFFECTIVE..
Tip No 8
Pay for all your day to day purchases and bills on a credit card with an interest free period, but make sure you pay the credit card off in full by the due date. (MAKE SURE YOU STICK TO YOUR BUDGET).- by doing this you make the bank/VISA/mastercard’s $$$ work for you for 30-55 days depending on your cards interest free period.
This method worked for me in paying off my first home in under 5years (as opposed to 25 years). Mind you that was in the days when homes cost less than half what they cost today!
Thanks Robert and so probably more like 10 years now then I would reckon but that’s still some way earlier than the usual home loan repayment term.
Like Robert says, he’s not a financial advisor and neither am I for that, far from it in fact. So whatever you do, make sure you do your own research, talk to your own advisor/parent/friend/bank manager for advice and don’t ever come back here and cry.
Did you know that you can also use your life insurance to pay off the mortgage? You can actually borrow a percentage from your life insurance policy, especially if you’ve paid enough years for it.
Has anyone got any more to add? This could turn into something…
Simon (and Robert!)