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#1 Nicole76

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Posted 23 July 2005 - 06:59 PM

Hi There!

This is my first post in about 5 years on i-do! DH and I were married in Nov 2000. Every now and again I pop in and read up on the house and garden section, money and babies stuff!

Anyway....

Just wondering do you and your DH/DF pay extra off your mortgage? If so is it something you regularly do? How do you balance paying extra and having a life?

We have just brought our first home biggrin.gif , waiting on settlement and have just signed the loan offer! Exciting but boy it is a load of money wink.gif !! We plan to pay extra.... but in saying that when we get in the house we are going to buy some new furniture and in Jan we are planning a holiday (our first since our honeymoon!!). I suggested to DH maybe we shouldn't do either.... but he said the mortgage is going to be with us for many many years so we need to live our life in the mean time, which I totally agree with.

I have watched many friends over the past few years buy their homes and they have put every cent into their mortgage, sacrificing lots to achieve this. During the past few years we have had the same focus to make our house deposit savings grow (that is why we haven't had a holiday since our honeymoon in 2000). So I know how easy it could be to do the same again with our mortgage.

I look forward to hearing how you manage to balance having a life/wants and your mortgage.

Thanks, Nic.



#2 LizHollins

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Posted 23 July 2005 - 07:05 PM

Heya,

I don't have a mortgage yet, but I think that your plans sound great - you don't want to sacrafice every penny you earn just to put into a mortgage that you will prolly refinance in like 5 years. If I could make one suggestion - when you go to buy your furniture you should do it on one of the interest free thingys that way you can pay it off and don't earn any interest. You just have to make sure that you do pay it off in the allocated time frame. Good luck and hope it all goes well for you.

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#3 Nicole76

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Posted 23 July 2005 - 07:41 PM

Hi Lizzie,

Thanks for the reply!

Just wanted to let you know we have already got the money saved up ready for the furniture. Not too keen on debt... guess that is why I'm trying to get my head wrapped around mortgage being long term debt. I'm sure I'll get use to it within a few months.... actually I'm a bit weird I'm excited about the first repayment! What a weirdo....



#4 rebecca_janet

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Posted 23 July 2005 - 07:54 PM

Hi Nicole

We have a mortage offset account instead of paying off extra. Our mortage broker explained that the money in there offsets the interest on the loan or something... I can't quite remember how it works.

All our money goes into the offset account and we pay for most things on our credit card. The full amount on our credit card gets automatically paid out of our offset. That way we have a lot more money offsetting the loan. It is pretty good if you are good at managing your money.

I am probably confusing you unsure.gif (I am confusing myself tongue.gif ) It might be an option worth exploring for you... does anyone else out there know how a mortgage offset account works??

#5 ~Pooky~

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Posted 23 July 2005 - 08:05 PM

yes we pay 250% of what we should pay

it gets it down really quickly

we live on what a basic amount but dont go out alot etc but it works fine

stopped doing that for the last year so the extra we were paying we save instead towards our wedding

next year we will get back into it again and feel no difference as we have been living on same left over amt as before

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#6 ~Pooky~

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Posted 23 July 2005 - 08:08 PM

p.s: make sure you dont leave yourself too little to live on - you need to live a bit as well ie have money to go out once a month and get new clothes now and again just be a good bargain hunter when you do it smile.gif

we also have a seperate account for bills that we put a set amt into each week and only touch it for bills insurance rego etc


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Louise & Chris 10/12/2005

Jessica Lauren 18/4/2007
Beau Nathaniel 17/2/2012
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Angel baby Ellery
- 11/12/2009
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Feb10 - Angel baby 2,May10 - Angel baby 3,Aug10 Amber angel,Nov10 bye bye bubba.
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#7 Dixie

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Posted 25 July 2005 - 11:10 AM

Hi there

We have just bought a house (only moved in three weeks ago) so have been going through the whole mortgage/offset process ourselves. We have a semi-offset account which means we don't have an actual account set up we only have a credit card account and our mortgage and we use the re-draw facility on the mortgage.

With an offset account you really do need to be disiplined with your budgeting but it can work really well once you have it all organised. Basically what we do each fortnight is pay our entire wages into our mortgage account excluding an allowance for each of us (currently $200 a fortnight). That way we still have some freedom on buying our lunches, cds etc however all joint purchases as in bills, groceries, entertainment etc will be made jointly. We have a joint credit card that we use during the month to make all of our purchases so we have to ensure that we keep an eye on what we are spending to ensure we don't spend more than we have sitting as an offset in the mortgage.

Each fortnight we effectively make a 'payment' of $XXXX into our mortgage. (This figure is our combined wages minus $400) The required minimum is only $800 (about $800 less than the wage portion put into the account) and so the remaining $XXXX is excess funds available for later redraw. By the end of the month when our credit card bill comes in, we have made 2 'payments', and so have covered our minimum obligations, plus our excess funds will have grown to about $1,600 (2 x $800). The full balance of our credit card is what we need to redraw from our mortgage, so we have to ensure we don't spend more than $1600 each month.

There is no adverse impact on interest calculations when you redraw at the end of the month to pay off the credit card. Remember you have loaded the mortage with excess funds during the month, and all you are doing with the redraw is bringing the balance back to where it would have been anyway had you not been using the offset.

There are 3 major benefits to this:

1. During the month there is up to $1,600 in additional payments sitting on our home loan, and so - given that interest is calculated daily - we have a slightly reduced interest charge each day of the month. For example, 7% of the full $1600 is about 30 cents a day, or about $9 a month. This comes straight off our home loan balance (and adds up over the term of a 30 year loan!).

2. If we spend LESS than $1600 a month on the card, then we don't need to redraw the whole $1600 to pay it off at the end of the month, and the remaining balance stays in our home loan - further reducing interest and the loan balance. This is where the real value of offset/redraw facilities lay. If, say, we find we only spend $1,300 a month on the credit card, then we need only redraw $1,300 to clear the bill. And so we are effectively making additional payments to your mortgage of $400 a month
Over a year, this is an extra $3,312 which comes straight off the loan balance, and saves us a heap of interest in the meantime!

3. There are 26 fortnights in the year and only 12 months. So, every now and then there will be 3 pay periods in a month, meaning that we will have
3 x $800 = $2,500 available for redraw at the end of those particular months to pay off our card. Again, if we are only spending $1,300 a month, then on these '3-pay' months, we are effectively paying an extra
$1100 into your mortgage.

The real value of all of this is defeinately in points 2 & 3 above. It can save you tens of thousands of dollars in interest over a period of 30 years as well as enabling extra funds to sit in the mortgage effectively making additional payments.

Finally, there really is no need to be concerned about using 'credit' to pay for everything so long as you pay off the balance in full each month
- doing this, we will a) never pay interest on the card, cool.gif earn heaps of loyaty points on the card (assuming your credit card has this), and
c) build up a very good credit history with the bank.

This procedure works really well for us - it would be best if you spoke to financial planner at your bank who could explain it much more clearly than I have.


#8 countrybride2b

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Posted 25 July 2005 - 11:20 AM

Hi B's girl

I have been looking into doing something similar when we buy. Something I noticed missing in the calculation is savings? By using this method is there any room for savings as such...or is it more that you are 'saving' by paying your loan off more quickly and effectively paying less interest?

#9 busybride

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Posted 25 July 2005 - 11:38 AM

We won't be paying any extra off our mortgage until we at least have a decent car to drive around in. Not much use being ahead in mortgage payments, which you've got 25 years to pay off, when you can't enjoy your life right now.

We want to enjoy as much of our money as we can now and think about things like putting more on the mortgage later.

But everyone does things differently.

#10 scasey77

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Posted 25 July 2005 - 12:47 PM

We also pay extra of our mortgage but don't do it to the detriment of being able to do what we want now. However, we also don't lead an extravagant lifestyle either. I think you are right in having to find a balance. We believe in putting any extra money we get into the mortgage. We currently pay the extra money on a weekly basis - it is just set up as a direct debit but when we get our tax refunds or any other lump sum amounts of money we also put those onto the mortgage as well. Both H2B and myself are lucky in that we are in an industry where we are pretty much guaranteed to get a pay rise every 12 months also so any pay rise we get is added to our weekly direct debit payment. We do this because we think if we could live on our pays before then we can continue to do so and use the extra money for debt.

There is something very liberating about getting rid of debt quickly I think. We are going to save about 10 years off our mortgage just by putting in the extra amounts and I definitely think it is worth it.
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#11 pinkbutterfly

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Posted 25 July 2005 - 01:01 PM

QUOTE (countrybride2b @ Jul 25 2005, 11:20 AM)
Hi B's girl

I have been looking into doing something similar when we buy. Something I noticed missing in the calculation is savings? By using this method is there any room for savings as such...or is it more that you are 'saving' by paying your loan off more quickly and effectively paying less interest?

Its like what you said.

Your "savings" are in the mortgage account. They are savings because they are payments ahead of the loan and therefore can be available for redraw if needed. But mor than anything, they are saving oyu interest.

Why would you put your $5,ooo savings in an account that gets you 5.5% when if you put it in your mortgage it is saving you approx 7%?

Everyone has different situtations and different needs and different loans, so best to speak to your lender or an advisor before deciding what to do yourself.

Amanda
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#12 pinkbutterfly

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Posted 25 July 2005 - 01:26 PM

QUOTE (countrybride2b @ Jul 25 2005, 11:20 AM)
Hi B's girl

I have been looking into doing something similar when we buy. Something I noticed missing in the calculation is savings? By using this method is there any room for savings as such...or is it more that you are 'saving' by paying your loan off more quickly and effectively paying less interest?

Its like what you said.

Your "savings" are in the mortgage account. They are savings because they are payments ahead of the loan and therefore can be available for redraw if needed. But mor than anything, they are saving oyu interest.

Why would you put your $5,ooo savings in an account that gets you 5.5% when if you put it in your mortgage it is saving you approx 7%?

Everyone has different situtations and different needs and different loans, so best to speak to your lender or an advisor before deciding what to do yourself.

Amanda
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#13 scasey77

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Posted 25 July 2005 - 02:29 PM

QUOTE (pinkbutterfly @ Jul 25 2005, 01:01 PM)
Why would you put your $5,ooo savings in an account that gets you 5.5% when if you put it in your mortgage it is saving you approx 7%?


Exactly

Also you get taxed on the interest earned on savings so you actually end up with less than the 5.5% as well - increasing the savings gap.
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#14 Dixie

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Posted 25 July 2005 - 03:42 PM

QUOTE
Hi B's girl

I have been looking into doing something similar when we buy. Something I noticed missing in the calculation is savings? By using this method is there any room for savings as such...or is it more that you are 'saving' by paying your loan off more quickly and effectively paying less interest?



Amanda has answered your question exactly the way I would have! Over the course of 12 months we might say accrue an additional $5000 for example in additional funds that we have sitting in the mortgage account. It is really enforced savings because we can choose to leave them there thereby decreasing the amount owing on our mortgage, or we can re-draw them should we want to go on a holiday or something. We are looking at buying a new car next year so hopefully we will have some monies in the account to redraw as a deposit.

By setting up our monies in this fashion we have found that we actually have more money available and we are definately not going without anything. The advantage is it has made me more aware of our cash flow and I really try and stick to our budget because I feel good knowing that we have this extra money paying off our mortgage or sitting there as savings.

[QUOTE]We want to enjoy as much of our money as we can now and think about things like putting more on the mortgage later.
QUOTE] We are the opposite to this. We are only in our early twenties and want to start a family by the time we are in our late twenties so it is important to us that we get the mortgage down quicker whilst we are both earning good money as I won't want to return to work for a couple of years when I have a baby. Each to their own though...I just figure why spend 30 years and tens of thousands of dollars in interest payments when with a bit of good money management you could easily cut 10 years off the mortgage and really reduce the money the bank gets. Why pay more than you have too is my motto!





#15 rarmalb

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Posted 25 July 2005 - 05:29 PM

Without going into the technical stuff ( the others have done that already biggrin.gif ) we pay at least twice the minimum amount each month, and it has gotten our 30 year loan down to 11 years in the 3 years we have had the house.

We are lucky in that we have quite a bit of 'disposable' income- we don't have children, both of us work full time, and neither of us have habits (i.e. smoking) that can get fairly expensive.

We put all our extra cash into the home loan. And we try and budget for one or two BIG purchases a year. So one year we got the expensive lounge suite, one year we got the new car (withdrew from the mortgage), and of course, we then paid for the wedding and honeymoon.

Just be sensible, and you'll be fine. I agree though, that you still need to have a life- The mortgage is important, but so is a bit of spending every now and then.

R




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