financial gurus!

We have had a mortgage for 10 years and it has grown if anything.

We are reviewing our finances and want to do more then just pay off a little extra each week. How is yours set up to work for you? The manager has mentioned an offset account, other options? How do you manage yours to pay it off ASAP?

Cheers in advance. Doing kiddie stuff so will pop back whenever I can!
xxx

Ours is going down slowly, but of course would love to pay more off! I pay as much as we can afford as we have a redraw facility (not that we've used it) which only costs $25. So I figure if I can put more money into it here and there we are better off, but still have the opportunity to redraw if necessary.

We pay ours off weekly instead of monthly, and that gets us ahead. We also pay $10 a week extra on top. It's not much, but it makes a difference.

We have always had our home loans set up as an offset arrangement.

The beauty of an offset account means it gives you access to money if you need it. It also means that the more you have in there the less interest you will get charged.

The downside is it's easy to keep pulling money out of it too if you are not careful. I've seen friends do this and then before they know it they have their loan at its limit and no re-draw ability.

Principal and interest loan - live on credit card, all money in one account. Withdraw cash when you need to.

Interest is paid on outstanding money...

For example $100,000 loan - you have $10k in savings in the account, you pay interest on $90K. The catch is that you rarely take money out of the account (do it once a month and live on credit card) as the longer the cash is in the account, the less interest you pay.

PM me if you want to know more

Principal and interest loan - live on credit card, all money in one account. Withdraw cash when you need to.

Interest is paid on outstanding money...

For example $100,000 loan - you have $10k in savings in the account, you pay interest on $90K. The catch is that you rarely take money out of the account (do it once a month and live on credit card) as the longer the cash is in the account, the less interest you pay.

PM me if you want to know more

it won't let me pm.... so i will just ask here if thats ok?


Do you have any dramas with using the credit card like that? Is it a matter of being super vigilant so it doesn't get away from you?
How do you think it compares to an offset account?

We have always had our home loans set up as an offset arrangement.

The beauty of an offset account means it gives you access to money if you need it. It also means that the more you have in there the less interest you will get charged.

The downside is it's easy to keep pulling money out of it too if you are not careful. I've seen friends do this and then before they know it they have their loan at its limit and no re-draw ability.

is the only advantage to an offset account that you can redraw? If I had a normal loan and just withdrew my expenses, if I put the leftover money into the mortgage would that reduce the interest in the same way?

Principal and interest loan - live on credit card, all money in one account. Withdraw cash when you need to.

Interest is paid on outstanding money...

For example $100,000 loan - you have $10k in savings in the account, you pay interest on $90K. The catch is that you rarely take money out of the account (do it once a month and live on credit card) as the longer the cash is in the account, the less interest you pay.

PM me if you want to know more

This is exactly how ours is worked out too. But we also have a $30,000 Line of Credit on top of our savings.

So.... ALL our wages go into the LOC on top of the $30k while we live off the credit card. Anything over $10 goes on credit.

Our interest is calculated at day 31.... so say if we have $38k in the LOC and we owe $98k on our home loan, we only pay interest on $60k at the end of the month.

Our credit card is then due on day 40. So we pay that out of the LOC, so it might be $3000 for the 40 days for example, this reduces the LOC to $35k after payment has been made to the credit card. We then transfer maybe $2k straight into the home loan, taking the LOC back to $33k and we start the 40 days again.

The only thing you have to be VERY careful with is that you STILL stick to a budget. It can be very tempting to have $30k at your disposal. You will only pay interest on the LOC IF you use any of the money. We choose to pretend that the $30k isn't there and live within our means. But its also handy to know that it is there, just incase. wink

We have had friends set their mortgage up like this though and they have fallen into one great big massive hole! Ended up spending all that was in the LOC and couldn't even pay their credit card in full at the end of the 40 days, so started having to pay interest on that as well. It was a nightmare for them! But they had no one to blame but themselves. blink

An offset account is the only way to go for investment properties too so I highly recommend them. BUT you need discipline to make it work for you.

Also paying your mortgage weekly reduces the amount of interest you pay too. We pay ours weekly and then a lump sum at the end of the 40 days. smile Hope that helps and makes sense for you.

it won't let me pm.... so i will just ask here if thats ok?


Do you have any dramas with using the credit card like that? Is it a matter of being super vigilant so it doesn't get away from you?
How do you think it compares to an offset account?

credit card - at the beginning I was super vigilant, but you get used to it. I always pay card off at EOM anyway. Even now when I no longer have a mortgage, I still do it....The only time it was an issue was when I was on holidays and had to be vigilant in terms so as not to over spend. I also made sure the credit card had a good rewards program to maximise the benefit...

look at the fine print when considering offset -for myself, when I looked at it (now several years ago), it was better than an offset account.It does depend upon who you are with. Some offset are calculated monthly or quarterly, so not as good to lessen the interest paid.
- bank fees and charges are less as you only have one account
- can take out money in whatever form or amount you want, offset sometimes can limit the amount in terms of minimum withdrawals - again depends upon which bank


try these links..
http://www.echoice.com.au/mortgage/home_loans?pn=/info/home_loan_types/offset_account.html

http://www.mortgagechoice.com.au/buying-next-home/loan-features-to-consider.aspx

This is exactly how ours is worked out too. But we also have a $30,000 Line of Credit on top of our savings.

So.... ALL our wages go into the LOC on top of the $30k while we live off the credit card. Anything over $10 goes on credit.

Our interest is calculated at day 31.... so say if we have $38k in the LOC and we owe $98k on our home loan, we only pay interest on $60k at the end of the month.

Our credit card is then due on day 40. So we pay that out of the LOC, so it might be $3000 for the 40 days for example, this reduces the LOC to $35k after payment has been made to the credit card. We then transfer maybe $2k straight into the home loan, taking the LOC back to $33k and we start the 40 days again.

The only thing you have to be VERY careful with is that you STILL stick to a budget. It can be very tempting to have $30k at your disposal. You will only pay interest on the LOC IF you use any of the money. We choose to pretend that the $30k isn't there and live within our means. But its also handy to know that it is there, just incase. wink

We have had friends set their mortgage up like this though and they have fallen into one great big massive hole! Ended up spending all that was in the LOC and couldn't even pay their credit card in full at the end of the 40 days, so started having to pay interest on that as well. It was a nightmare for them! But they had no one to blame but themselves. blink

An offset account is the only way to go for investment properties too so I highly recommend them. BUT you need discipline to make it work for you.

Also paying your mortgage weekly reduces the amount of interest you pay too. We pay ours weekly and then a lump sum at the end of the 40 days. smile Hope that helps and makes sense for you.

I didn't have a LOC, just a normal credit card attached to my home loan.

However, same end result - not to go overboard with spending and ensuring payment credit cards in full each month.

Principal and interest loan - live on credit card, all money in one account. Withdraw cash when you need to.

Interest is paid on outstanding money...

For example $100,000 loan - you have $10k in savings in the account, you pay interest on $90K. The catch is that you rarely take money out of the account (do it once a month and live on credit card) as the longer the cash is in the account, the less interest you pay.

PM me if you want to know more

This is exactly what we do and it works well for us. As long as you can stick to a budget it's a good way to go.

thanks everyone! I really appreciate your help and the links!

I have never had a credit card....so far I have kept everything very simple in terms of finances. But now I want to start knocking this stuff off.
My main concern is it getting away from us. We seem to have a lot of "rainy days" in this house.... it feels like everytime we get ahead something breaks. eg. I finally saved the money for my driveway to be fixed. Then my rainwater tank started springing leaks and soon it could only hold 1/4 of a tank. (no mains water here, just 1 rainwater tank....) got the bloke out to have a look, gave us a quote, then our car broke down completely and we needed to use the money for that instead. (our house is a 15 min drive from the nearest bus stop or a 3 hour walk.....)
on the other hand, we now have a fixed tank and a new car, we know the issues with the house - there shouldn't be too many surprises!