Fru-Gal Friends

Subject: Mortgage reduction Sun 13 Jan 2008, 6:20 pm

I have previously mentioned looking at ways to reduce our mortgage in the New Year since I'd already tackled other household expenses with varying success (or not..lol).

Well, I had phoned our mortgage lender before Christmas to enquire about making additional payments and if it would lower our principal. I was told that additional payments would go into a 'redraw' facility and would reduce the monthly interest calculated and charged onto the outstanding balance. Our fortnightly (bi-weekly) payments would stay the same though.

Well...I rang them again yesterday after using the mortgage calculators on their website and trying out various scenarios!
I explained that one of my intentions was now to reduce our mortgage balance as quickly as we can. I explained that we have been saving and wanted to make a 'lump sum' payment off our outstanding balance and enquired if it would come directly off the balance or go into a redraw facility (which is not exactly what I want).
I also mentioned we were considering refinancing if it were in our best interests Wink

I have now received a 'Principal reduction form' to complete and return. Using this form we can make a lump sum payment which will be paid directly off the outstanding balance. As soon as this is done, the lender will then recalculate our fortnightly payments for the new reduced balance Very Happy

This sounds appealing as we've lowered our amount owing PLUS our fortnightly repayments will go down cheers

This will also save us on monthly interest charges. I've been weighing up whether to keep the money in savings while it's earning interest or paying it into the mortgage where it will probably save us more in interest monthly compared to the interest we'd earn on it.
I hope I'm making sense scratch

This method will NOT incur any fees either, where refinancing would.

I've been pretty consistant with trying to save each month now so I think we'll go ahead with this plan, perhaps increase our fortnightly payments also after the recalculation and continue trying to save every month. If possible, I'd like to make a lump sum payment each year, finances permitting. Smile

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~ By sowing frugality we reap liberty, a golden harvest. --Agesilaus ~

Subject: Re: Mortgage reduction Sun 13 Jan 2008, 7:59 pm

That is great, Skin.
For one year, I was able to pay $200 additional to my mortgage, it really helped out alot. It make a 30 year mortgage a 17 year mortgage, if I remember correctly. And that was just with one year's worth of additional payments!

Good luck, and keep us posted!

~M
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"It is not how much money you make - it is how you spend it."

Subject: Re: Mortgage reduction Sun 13 Jan 2008, 8:22 pm

That is great skin. i hope it all works out well for you!
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Vicki

Subject: Re: Mortgage reduction Sun 13 Jan 2008, 9:13 pm

sounds good Skin
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Gayla

"They take great pride in making their dinner cost much; I take my pride in making my dinner cost so little."

---Henry David Thoreau (1817-1862)

Subject: Re: Mortgage reduction Sun 13 Jan 2008, 9:28 pm

Moderator Age : 27 Joined : 12 Oct 2006 Posts : 1693

Good luck Skin!!!

Subject: Re: Mortgage reduction Mon 14 Jan 2008, 5:55 am

Every little bit helps. Even if you do only 1/2 of the amount you want for a year and keep the rest for an expected trip to Ireland or projects around the house. It would still be better than doing nothing at all, in my opinion.

May I ask what the interest rate is on your mortgage and for how many years?
Some people think that it is better to save into a fund making more interest than you're paying with your mortgage. Whether that be a CD, Savings, Stock Market or Mutual Funds.

Personally, I am middle of the road. Because I want to retire early, AND pay off the mortgage quicker, so, when I have extra funds, I would want to fund both equally.

~M
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"It is not how much money you make - it is how you spend it."

Subject: Re: Mortgage reduction Mon 14 Jan 2008, 9:23 pm

M, it started out at 6.42% 3 years ago. With interest rises it's now at 7.9%.
We're 3 years into a 30 year mortgage.
We are with ING and it's currently one of the lowest rates here so not a lot of point in changing as I've been checking around.
You have given good advice, I'm considering 75% of my original lump payment!

Now I'm still compromising...lol...and we will have reserve which I'll keep adding to. I don't want to scratch the surface, I want to take chips off (if not chunks!). As long as it's comfortable for us.

The lower we make our principal, then the more of what we're actually paying will go towards that instead of towards the interest...grrrrr! Smile

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~ By sowing frugality we reap liberty, a golden harvest. --Agesilaus ~

Subject: Re: Mortgage reduction Tue 15 Jan 2008, 6:28 am

:-)
I understand completely.
I hate having to pay interest.

~M
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"It is not how much money you make - it is how you spend it."

Subject: Re: Mortgage reduction Tue 15 Jan 2008, 9:26 am

Good luck Skin. Sounds like a good plan.
We refinanced our house in December from a 30-yr fixed at 6.5% to a 15-yr fixed at 6.0%. PMI was also finally off the mortgage so now our payment are roughly the same as before but it will be paid off in 15 years or sooner.
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Subject: Re: Mortgage reduction Tue 15 Jan 2008, 12:18 pm

That's certainly a much better deal escarcha Smile

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~ By sowing frugality we reap liberty, a golden harvest. --Agesilaus ~

Subject: Re: Mortgage reduction Wed 02 Apr 2008, 6:01 pm

Well, with all the recent hikes, the interest rate our mortgage is currently at 8.64% and will potentially rise again!!!
This means even though we paid a modest extra lump sum to reduce our principal balance and lower our fortnightly repayments, the revised payments are now higher than what we started with at the beginning of the year. We're forking out approx. $50 extra per fortnight Shocked

It would be a bit more if we hadn't arranged the principal reduction.
I was hoping to deposit a weekly set amount in our savings account, when we could afford it, and each six months transfer it using another principal reduction form off the mortgage balance. This serves not only in reducing the balance but our regular fortnightly repayments are recalculated and reduced....am I making sense?...lol.

Currently, since the interest on our mortgage is higher than the interest on our savings, I'm thinking it makes more sense to transfer the weekly set amount against the mortgage to reduce interest charges as best we can. Unfortunately this won't help to lower the repayments Oh Well

Maybe we'll get back to that over a period of time....I'M DETERMINED TO KEEP TRYING.
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~ By sowing frugality we reap liberty, a golden harvest. --Agesilaus ~

Subject: Re: Mortgage reduction Wed 02 Apr 2008, 6:44 pm

SKin,
I dont remember if you told us or not, but are you able to get a fixed mortgage to avoid the fluctuations?

~M
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"It is not how much money you make - it is how you spend it."

Subject: Re: Mortgage reduction Wed 02 Apr 2008, 7:21 pm

It is possible to get fixed rates, it is also possible to fix a portion and have the rest on the variable rate.
The interest rate is higher on fixed mortgages, at this stage I'm not sure we want to tie ourselves into this on the off-chance they won't increase a lot more, they could stabilize and 'wishful thinking' they may drop. It's getting tighter but we can manage. If things got really bad I'd investigate further.
Also, with fixed, I'm not sure if we could make additional payments, that's another thing we'd have to look at if we went there.
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~ By sowing frugality we reap liberty, a golden harvest. --Agesilaus ~