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!
:drinkup:
MDU
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!
:drinkup:
MDU