Fast Money E-Book

Ashley Ormond

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 107

Veröffentlichungsjahr: 2013

Beschreibung

Do your finances control you? Frustrate you? Limit you? Well take control of your money today and get more of what you want from life. Bestselling author, Ashley Ormond guides you through the mortgage maze saving you thousands of dollars. Fast Money: Conquer Your Mortgage is a jargon-free, practical guide that will get you closer to paying off your mortgage and on the road to financial freedom, fast!

Leseprobe

Contents

Introduction

Chapter 1: Do the Numbers

Chapter 2: Increase Your Mortgage Repayments

Chapter 3: Make One-Off Extra Payments

Chapter 4: Use Pay Rises to Increase Your Loan Repayments

Chapter 5: Shorten the Life of the Loan

Chapter 6: Use Your Income Patterns to Pay Off Sooner

Chapter 7: Pay Fortnightly Instead of Monthly

Chapter 8: Shop Around For a Lower Rate

Chapter 9: Keep Repayments Flat When Rates Fall

Chapter 10: Don’t Keep Switching Loans

Chapter 11: When Refinancing, Stick With Your Existing Lender if you can

Chapter 12: Always Choose Principal-and-Interest Loans Over Interest-Only Loans

Chapter 13: Stick With Floating Mortgages

Chapter 14: Avoid Redraw Mortgages

Chapter 15: Be Careful of Offset Accounts

Chapter 16: Don’t Use Line-of-Credit Mortgages

Chapter 17: Beware the Honeymoon Rate Nightmare

Chapter 18: Don’t Capitalise Loans

Chapter 19: Upgrade Your Subprime Loan

Chapter 20: Consolidate Debt at Your Peril!

Chapter 21: Don’t Pay For Features You Don’t Need

Chapter 22: Take into Account All Fees

Chapter 23: All Fees are Negotiable

Chapter 24: Don’t Count on Your Partner’s Income to Borrow More

Chapter 25: Mortgage Brokers — Spot the Double Take

Chapter 26: Check That You are Getting the Correct Rate Changes

Chapter 27: Let a Tenant Pay the Mortgage

Chapter 28: Consider Long-Term House-Sitting

Chapter 29: Plan a Mortgage-Burning Party in Advance

Chapter 30: Pay Off the Mortgage Before Investing

Chapter 31: Don’t Bank on Your Superannuation Fund to Pay Off the Mortgage

Chapter 32: Let Grown-Up Kids Pay Part of Your Mortgage

Chapter 33: Consider Mortgage Contributions Instead of Presents

Chapter 34: Downsize — Smaller House, Smaller Mortgage

Chapter 35: Trade up Houses, But Trade Down Debt

Chapter 36: Try the Payout Two-Step

Chapter 37: Avoid Complex Mortgage-Reduction Schemes

Chapter 38: If You Have to Sell, Stay in Control

About the Author

Further Reading

Introduction

A home mortgage is the largest debt you will be likely to take on in your life, and it is usually the debt that lasts the longest. A home mortgage is a necessary evil because it is usually the only way to buy a first home. From there the aim should be to get rid of it as quickly as possible, so you can get on with building real wealth.

Every dollar you spend on mortgage payments is two dollars you could be investing instead to build wealth for the future, thanks to the numerous tax breaks you get for investing.

Although a mortgage might start out at several hundred thousand dollars over 25 or 30 years, there are dozens of ways that can help you pay it off much sooner.

Chapter 1

Do the numbers

Most of your repayments go towards paying interest to the lender, and in most cases less than half of your total repayments actually go towards paying back the amount borrowed (the loan principal). For example, if you borrow $300 000 over 25 years at 7 per cent, you end up paying back a total of $636 101 (not counting fees and other charges), which is more than double the amount you borrowed in the first place.

Table 1.1 shows the situation for loans at interest rates of 5 per cent, 7 per cent and 10 per cent when $300 000 is borrowed over 25 years.

Table 1.1: mortgage repayments for different interest rates when $300 000 is borrowed over 25 years

The next important factor is that the loan balance reduces very slowly at the start of the loan, because in the early years the majority of each repayment goes towards paying interest to the lender and only a very small part actually reduces your principal balance. The higher the interest rate, the greater proportion of each payment goes in interest and the slower the balance reduces over time. This can be seen in figure 1.1.

Figure 1.1: mortgage balance reduction at different interest rates

Many people get a shock when they find out how much they still owe on their mortgage after they have been paying it off for years. For example, for a 7 per cent mortgage over 25 years, after five years (or 20 per cent of the total term) you might expect that about 20 per cent of the loan would have been paid off. Wrong! After 20 per cent of the loan term, you will have paid off only 9 per cent of the loan and you still owe 91 per cent of it! Even after half the loan term (12.5 years), you have paid off only 29 per cent of the loan and you still owe 71 per cent! It may seem unfair but that’s how the numbers work. All principal-and-interest mortgages work this way.

Table 1.2 sets out loan balances at various stages, at different interest rates. The higher the interest rate is, the slower the balance reduces over time and the more you owe at any stage during the loan.

Table 1.2: how a 25-year, $300 000 loan reduces over time at different interest rates

If you currently have a mortgage, you should complete the following exercise:

Work out how much you have paid to the lender so far by multiplying your monthly payment by the number of payments you have already made:

I have already paid: _________ per month ×________ months paid = $_______

If your repayments have changed since you took out the loan, still add up the total you have paid so far.

Next, see how much has come off the loan principal by comparing the current loan balance with the amount you initially borrowed plus any additional amounts borrowed.

Amount I have paid off the principal:

Initial loan of:________ minus current balance of:________ total amount borrowed = $________

Finally, work out how much you are contracted to pay in the future by multiplying the monthly payment by the number of months remaining in the term.

I still owe:________ per month ×_______ months left = $________

If you have an interest-only loan you need to add the principal onto the total amount payable because you will still owe this at the end of the loan term.

If these results don’t scare you into action, then nothing will. This exercise drives home the importance of getting a low interest rate on your loan and paying off as much as possible as early as possible to minimise the interest payable and to get rid of your debt sooner.