A thread for KK and Mortgage holders

**ManDownUnder** · 5th July 2005, 15:44

KK, and anyone else wanting to know...

Here are my pointers for paying off a house quicker (and/or to your advantage). ALL of this pre-supposes you can manage money - you need to learn how to do that if you're going to get anywhere in life, and it's actually a lot easier than you might think.

[edit] - note the warning in Post 9 below (wkid-one). Good post - if you can't manage money... this ain't for you

1) Work out how much interest you'll pay the bank on your mortgage amount over 25 years. This is a handy number to i) give you the willies and motivate you to pay it off quicker and ii) beat up the bank with (below) and get a better deal.

2) Work out how much you need to borrow. Consolidate your debt (credit card at 17%, Car Loan, HP etc... in fact EVERYTHING on a higher interest rate than your mortgage). In essence you'll be refinancing these down from their current interest rate to your mortgage interest rate.

Of course if the interest rate is already lower - leave it alone!

[edit - note SpeedMedic post #7 below. Good call - advice in #2 is not correct for short term loans. My personal thought is that you're better to pay them off]

3) Talk to your bank - tell them you're bringing all you business over to them (loans, credit card etc) and in return you'd like to see monthly and Annual fees dropped.
i) Point out how much interest your loan is worth to them over the duration, and then mention the tiny dent in that amount the fees represent.
ii) if/when it comes up in conversation, mention they're likely to lose either the smaller amount (giving up the fees) or the greater amount) giving up your business when you change banks)

4) Work out how much you expect to pay off in a year, then add 20% or whatever. Set up a revolving credit account and drawn down this amount to pay off the house. When setting this account up, ask for ALL the additionl credit they'll let you have. You'll have it on hand for various things if needed, but set it up and forget about it.
i) DON'T SPEND IT if you don't need to. This is your safety blanket in case things go wrong. If you lose your job but have $50,000 you can use while you find a GOOD one... that's better than having no available credit and living on the bones of your bum, being forced to take the first crap job going by (complete with pay cut, no holidays etc etc etc... and putting your whole mortgage at risk)

5) Put the balance owing into 1 or more fixed term loans. I usually put it in 2 pieces, with both of them at a term with the best rate or possibly one at the one year rate and one at the two year rate. This gives room to move and refix at preserable rates as they present themselves at the time of renewal. It also means you don;t have to pay any "restructuring fees" to the bank of you want to split the terms later on... no harm in having two loans on the same rate for the same term if there's no fees (see point 2) above)
i) Pay WEEKLY. It doesn't seem much different, but every week you're paying just a little more, and you'd be surprised how much of a dent it makes. I saw a mortgage reduced by about 5 years... When that's 20 years away you'd think "how cares" but I tell ya what, when I get to that age I'll be glad of it (work out how much interest it'll save you... it's a fun game!)
ii) Check out the impact of putting in an additional $10/week... or $20 a week (choose an aggressive but realistic figure that you'll be able to use). Get the bank to tell you what it reduces the Term of your loan by. You might surprised! Even if it turns out you can't afford that amount it's OK... you "bought" yourself a buffer at the bank by getting a bigger credit limit available on your Revolving Credit Account (see 3) above)

6) Pay off your credit card and other debts (be careful of early repayment penalties) from your revolving credit account. This will stand you in good stead financially, and will impress the banks with your financial prudence (they like people that know about money management...!)

7) Once you have the loan, go shopping for any credit card out there you like, some have good rewards programs. Ditch the Credit Card you got with your mortgage provider if it's not the best.
i) only ever have one credit card, as you'll pay less fess.
ii) always accept the extra credit rating offered to you. You don't have to use it, but if an emergency or opportunity of a lifetime comes up, it's GOOD to have credit available NOW.

8) EVERY month, pay off your credit card IN FULL... on the last day it's due. DO THIS EVERY MONTH. If it hurts to do it - learn your lesson... DON'T SPEND SO MUCH (but pay it off in full anyway)

9) Put all your income into the revolving credit account. Have no accounts in the black - always be overdrawn. This way you:
i) Earn no interest (and therefore don't pay tax on that interest, reducing the effective rate by 1/3)
ii) Minimise the amount owing on the Revolving Credit part of your mortgage.

In effect, your pay is "earning" you the interest rate your Mortgage is charged at (by minimising the amount owing).

===
RIGHTO.. here's how it appears in day to day operation... for me anyway.
My pay goes into my Revolving Credit account and reduces the amount owing, and therefore the amount of interest I pay

I buy everything I can on the credit card

I get fly buys etc on my credit card (and they cost me NOTHING)

I pay off my credit card in full every month

I pay as much as I can off my fixed loans, and then some... slowly putting my revolving credit account backwards. Being in a sales job I sometimes get a commission payment that squares it all up again.

When one of my fixed rate loans comes up for review, I:
i) find the best rate to refix at
ii) adjust the balances between the fixed and revolving credit portions to so the amount owing on the Revolving Credit one is an aggressive target to be paid off when the next fixed rate portion becomes available.
iii) I set the term of the fixed portion to be the best rate and set each (weekly) payment to be agressive and reduce the term (usually to a 15 year period if I'm just starting out on a mortgage).
iv) I ask for more available credit in the Revolving Credit Account if my salary has gone up since I last spoke to the bank. More credit available = safety!

I forget that I have shitloads of credit available to me... it's not tempting... not actually a big deal.

I enjoy rewards coming from the FREE flybuys on my credit card.

I live day to day only watching the balance of my Revolving Credit Account. The rest are taking care of themselves.

I enjoy a good credit rating - the banks reward me for using their money...!

I hope this makes sense?

If you want to take some or all of this stuff on board - take it via a Mortgage Broker to make sure you're getting the best deal... and that I'm not telling you a crock. I don't think I am and what I've outlined above works VERY well for me but I'm human and may have mistyped summat or been unclear... and we're talking about a lot of money here - YOUR MONEY!

MDU

**That Guy** · 5th July 2005, 15:59

Yep thats the way to go - we live of revolving credit and all our income goes into that, the larger portion of the total mortgage is fixed for annual review. It has meant we have paid off the absloute maximum amount we could, the result being we are nearly done many years sooner that we would have been had we put the lot on fixed payments.

**Big Dave** · 5th July 2005, 18:46

And if there are still cheques in the book there must be money in the account - right?

**Kwaka-Kid** · 5th July 2005, 19:23

wholey crap!

im gunna read this over just 8 more times, then proceed to PM you MDU asking for explainations! haha! yeah will PM you, i do however understand a fair amount of it.

**DingDong** · 5th July 2005, 19:23

I dont know what the hell Im doing but it seems good, We pay more each week into our loan so that we have funds avalible for re-draw but the ballance comes off the total when the interest charge comes in... so the more we have for re-draw the less interest we pay.
We use this as a safety net too but only have around 15k so far because we've been spending some... we can add around 2k per month so after we spend yet a little more on a holiday we'll get it back up to around 30k.

Am I doing it wrong? good with money but I can bearly count (or spell) let alone understand bankers.

Thanks MDU great to hear from someone in the know and whos not tring to ripp me off.

**Mooch** · 6th July 2005, 00:11

Good stuff mandownunder

The way your setup will take years of the loan
Another thing to note is that some Banks will reduce the published rate by another .5% for the business , That's another $500 per $100k less interest.

Heres a few egs on Mortages , for those who haven't given it any thought.

Say you browow 150,000 @ 9%
The interest would cost you the following
10 years interest = 77k
15 years interest = 123k
20 years interest = 173k
25 years interest = 227k

So in motorbike terms based on a 15 year mortage you should have the cash to buy a TAMBURINI , Senna , Rizla 12 years after the house has been paid for.

**rfc85** · 6th July 2005, 06:28

this is all good shit and i will check it out with a broker as I LIKE MY MONEY and any way to save some is ace
thanks to all for the info

**wkid_one** · 6th July 2005, 07:06

Disagree in that your point works for people who are debt adverse only[U].

Having lent in excess of $100m to home owners - I have seen many people get in financial shit by adopting the ethos you have prescribed. This works in principal and is the 'dummy's guide to debt reduction' - however, in general, where NZer's have a tendancy to spend first and budget later - you can easily come unstuck and at best stay stationary with an RCF - and only pay nominal amounts off your term lending.

Easiest and quickest way to reduce debt is to reduce the term, which in turn reduces the interest cost. Pay the maximum you can afford. Reducing loans (seldom sold by banks) are also better off at the outset of the loan than table facilities.

Remember - in many instances, mortgage brokers also don't know a great deal about lending - as some are not from the industry - choose your broker very wisely.

I could go on and comment on each point - but I won't

**Ghost Lemur** · 6th July 2005, 09:42

I'm not even close to being in a position to get a mortgage. But what do you guys think about Mortgage Brokers?

Read a piece in the Business Forum section of The Press June 29.

It was about how they're payed and the passing on of that cost to customers. It talked about how early on it used to be a 1% fee but now is generally comprised of an initial referral fee (up to 0.85%) and an annual trail commision (of 0.25%) which is payed for the life of your loan.

The reason for the article was the BNZ is the first large bank to publicly declare it's refusal to continue accepting broker loans.

It also talks about the potential lack of objectivity that the brokers have when they can be earning substancially more pointing you to one bank over another.

It suggests being more inquisitive with the broker you use, ie get them to explain why certain banks were eliminated, how many they looked at and why etc.

It also suggests that it would be better for the consumer if they payed the broker direct for their services.

Thoughts?

**ManDownUnder** · 6th July 2005, 10:11

Originally Posted by wkid_one

Disagree in that your point works for people who are debt adverse only[U].

Having lent in excess of $100m to home owners - I have seen many people get in financial shit by adopting the ethos you have prescribed. This works in principal and is the 'dummy's guide to debt reduction' - however, in general, where NZer's have a tendancy to spend first and budget later - you can easily come unstuck and at best stay stationary with an RCF - and only pay nominal amounts off your term lending.

Easiest and quickest way to reduce debt is to reduce the term, which in turn reduces the interest cost. Pay the maximum you can afford. Reducing loans (seldom sold by banks) are also better off at the outset of the loan than table facilities.

Remember - in many instances, mortgage brokers also don't know a great deal about lending - as some are not from the industry - choose your broker very wisely.

I could go on and comment on each point - but I won't

Hey chap - I appreciate the input - good point. and I think your post is a good warning to those that think this is "just a trick you can do that makes things sweet". It ain't.

With a bike there are some things you can do to make you ride faster around corners, better lines, know when to brake, when to accelerate etc... but there remains an overriding principle that if you go too fast you will go off the road... even doing everything else right.

Just the same with money... if you spend more than you bring in - you're heading for problems. Learn to spend less, or earn more (preferably both)

I tried to mention it's only for people that can manage money... my perspective is that you need to not have that "I've got money - must spend it" gene. In my mind one of the best ways to learn that is to Pay the Credit card off IN FULL every month.

Sometimes it hurts - especially in the early days. But that's a good pain (and one I don't want to experience again...)

In principle however I'd stick by what I've said above. Be aware I DO NOT claim any professional expertise in the area, but I have experience over tha last 9 years, and have paid off one house in that time using it, and am working on #2...

Seeing KK's post about buying a house at an early age reminded me of my situation, and I enjoy helping people get up on their feet... and I see the ongoing financial burden of a mortgage over 25 years as being a biggie!

I would say it's worth looking out for the various loyalty programs. I love the fact I can buy something, hand over the Visa and get Fly Buys (or Airpoints Dollars or anything else the various cards have on them), AND I get to keep the money in the bank till the day I pay the bill.

As for choosing your broker very wisely... YES - good point. This is the person who will make or break things for you. They get paid by the banks... but I'd also suggest ringing around the banks to find out who doesn't lend via a broker. I think BNZ is one of them - there are one or two out there.

Wikd, good point about the "staying stationary on the Revolving Credit Fund" too. This is opne of the easy barometers of how you are doing. Unless you have a damned good reason for doing so (i.e. you needed to replace a dead bike or summat) that RC Account should be creeping towards a zero balance.

Cheers dude
MDU

**ManDownUnder** · 6th July 2005, 10:19

[QUOTE=SpeedMedic]MDU.

I agree with most of your points and they are all ideas that work. I do the same thing with credit card being paid off every month without fail (bank hates me), and using their accounts to my advantage in different ways.

I would like you to clarify the above point you make though.
My understanding is that it is seldom a good idea to amalgamate personal loans HP's etc into your mortgage. It is a false economy to just think.. hey lower interest rate it must be better... It is not. You forgot to mention the term over which the loan is carried.
[QUOTE]
Yup - good call... I overlooked/wasn't too careful to think about that.

Better to pay the buggers off completely!
MDU

**ManDownUnder** · 6th July 2005, 10:28

Originally Posted by Ghost Lemur

I'm not even close to being in a position to get a mortgage. But what do you guys think about Mortgage Brokers?

Read a piece in the Business Forum section of The Press June 29.

It was about how they're payed and the passing on of that cost to customers. It talked about how early on it used to be a 1% fee but now is generally comprised of an initial referral fee (up to 0.85%) and an annual trail commision (of 0.25%) which is payed for the life of your loan.

The reason for the article was the BNZ is the first large bank to publicly declare it's refusal to continue accepting broker loans.

It also talks about the potential lack of objectivity that the brokers have when they can be earning substancially more pointing you to one bank over another.

It suggests being more inquisitive with the broker you use, ie get them to explain why certain banks were eliminated, how many they looked at and why etc.

It also suggests that it would be better for the consumer if they payed the broker direct for their services.

Thoughts?

My thought is they get paid for their expertise. The one I use is GOOD. He has a financial style similar to my own (not risk averse, but not keen on spending time in jail either). He knows about the banks, the way to structure finances to suit our lifestyle, but also about trends and economic conditions (which will affect interest rates).

He and I work well together and we take turns at pissing each other off... but that's the way it goes.

Re brokers as a whole, you as always entitled to talk to the banks directly though. Best time to do that is when you don't need to (i.e. there is a month before you need the money, line up 3 or 4 back to back meetings an see what the bank can do for you).

If you can negotiate a better deal (interest rates, bank fees, and mortgage structe) for yourself... hell - do it!

Always remember the bank is just a shop. You are doing them the favour of borrowing money off them. You pay them, the provide the goods, and there is always another bank just down the road.

That's why I say you should know how much interest you're going to pay ahead of time - before you go into the bank. They'll possibly see it as them doing you the favour - feel free to remind them it's not the case.

Not in those terms, but have your numbers handy, and ask them to work out the others for you.

I love sitting down and playing with the figures with them. "How much faster do I pay it off if I put an extra $10/week into paying that loan off?... what about $20.... $35?..."

Find the numbers that suit YOU and lock them in for a year to start with (gives you time to refine what you're doing). Lock 'em in for 2, 3 or 5 years if you're comfortable doing that and the interest rates on those are advantageous.

MDU

**ajturbo** · 6th July 2005, 10:50

Originally Posted by wayne kohi

I dont know what the hell Im doing but it seems good, We pay more each week into our loan so that we have funds avalible for re-draw but the ballance comes off the total when the interest charge comes in... so the more we have for re-draw the less interest we pay.
We use this as a safety net too but only have around 15k so far because we've been spending some... we can add around 2k per month so after we spend yet a little more on a holiday we'll get it back up to around 30k.

NO,...NO...NO....

you are put more money in to ...

PAY FOR YOUR FINES...