Skip to content Skip to main navigation

Business

The voice of business in Canberra

Ten things I am doing to pay off my mortgage by Christmas

By Serina Bird Huang (aka Ms Frugal Ears) - 6 July 2016 14

Budget generic

In January I announced on my blog that I would pay off my mortgage by Christmas 2016. Last week I caught up with two girlfriends for a frugal lunch.  “How is your goal of paying off your mortgage going,” one of my friends asked me.  “I’m on track,” I told her.  There was some disbelief and she wanted to know how I was doing it. This is what I told her about how I am achieving my goal:

Ms Frugal Ears standing in the door of a house

 

  1. I refinanced to a lower interest rate with UBank. I was previously paying 4.25% with another institution, which was comparatively low at the time and the service was also very good.  As part of my property settlement, I had to refinance my property into my own name so I took the opportunity to look around for a good deal. I was already banking with UBank and already liked how their online system worked, and the fact that they are backed by NAB. In January when I refinanced they had one of the best products for a home loan – 3.99% (no fees or charges). It has since decreased to only 3.74%.
  2. I checked out online mortgage calculators to work out what I would need to repay to achieve my goal. There are a few calculators around, but I liked best the mortgage calculator on ASIC’s Money Smart website. Doing this really brought home to me the importance of how little tweaks like a slightly lower interest rate or additional repayments (even $100 extra a month) can have a profound effect in the amount of interest you pay over the life of the loan. I want to own my own home by Christmas so I worked out how much I would have to pay to do it. I go back to this calculator often when I need a bit of inspiration.
  3. I sold  investment properties. OK, so I guess that having investment properties with an ex isn’t something that everyone has to draw on. “It’s lucky for some,” a work colleague sniped when I mentioned that one property sold for a record price (this was a blessing, in amongst all the divorce angst, and also helped offset the fact that the next one sold at a loss). I wasn’t born with a magic silver spoon, and neither was my ex. And neither of us were on super high incomes – in fact, I was the main income earner in our relationship. We did get some money from his mother (since repaid), but for the most part our 10 properties were acquired over a decade of working hard, living frugally and investing. Having homestay students for six years also helped. The little bits added up. It didn’t feel like we were making much progress at the time but now I can certainly see that it made a difference.
  4. I sold shares. I invested in Vanguard index funds last year. I invested 10% of my take-home pay into Vanguard last year, following The Richest Man from Babylon technique (a part of all you earn is yours to keep).  I didn’t focus on paying off my mortgage last year as ownership only transferred into my name solely in January. I really like the Vanguard product and will likely invest again at another time. But right now the priority is owning my own home outright, so my focus is on that. I believe that with interest rates at a record low level it is also an ideal time to do so.
  5. I am earning extra rental income. I rent out a granny flat in my backyard.  And from February, I have rented out a room in my home as well. “Aren’t you worried about lack of privacy,” people sometimes ask me. Others are more blunt and tell me that I am very brave and that they could never do that – privacy is too valuable and it would be too hard to trust having strangers in their home. Well there are two points here. Firstly, the rental income nets me up to $20,000 extra a year that I use to pay off my mortgage. Just stop and consider how many extra hours you might have to put in at work to earn that. Secondly, far from losing my privacy I love the warm community I have created by opening up my home.  Before having housemates I felt lonely and isolated, and would sometimes wake up in the middle of the night worrying about intruders. Now my boys play with the son of my granny flat tenants, and they love playing board games with my housemate. From time to time we get together for a BBQ or a pot luck dinner – my previous housemate made the BEST chicken tikka.
  6. Scheduling regular, additional payments direct to my mortgage. I am still implementing The Richest Man in Babylon technique this year, and ensure I always pay myself first. I worked out what my mortgage repayments would be, then I added 10% of my take-home pay on top of that. Then, just for fun, I doubled it so I make mortgage payments once a  fortnight rather than once a month. The payments are scheduled to come out of my UBank ultra account so I don’t have to do a thing. I never miss the money because I never had it. You adjust to what you have to spend.  Simple.
  7. Whenever I make a saving, however small, I put it straight onto the mortgage. Every single time. Like last Wednesday, for example, I was standing in line at the cafe to buy a Florentine biscuit for $2.50 (I have long since given up takeaway coffees or teas). My work has one of the best cafe bakeries in Canberra.  There are always temptations. “Do I really need this,” I asked myself. “It isn’t healthy and you want to reduce weight.” Too right. So while a part of me inwardly whinged that I ‘deserved’ a treat, the more virtuous side of me marched myself back up to my desk, ate a banana instead, logged onto internet banking, and transferred $2.50 to my mortgage via BPay. This might not sound like a lot, but over the course of a month all the little savings really add up. On average I save around $1,000 a month this way – last month I saved $2,800. Not just by avoiding eating biscuits but by bigger things, too (e.g. refunds from visits to the doctor, negotiating better prices on products, or even better, discovering I didn’t really need to spend money on something and not buying it).
  8. Monitoring how my mortgage balance is coming down. I think the real power to how regularly transferring small savings to the mortgage works is that I am constantly focusing on my goal. Sometimes I log onto UBank more than once a day, and the first thing I always do is look at that magic number of the amount still owing on my mortgage. I am noticing how regular, small additional repayments really do make a difference. It is so exciting. So when for example I am standing in ALDI looking at Egyptian cotton sheets and imagining how much nicer they would look on my bed than the faded Elvis blue ones with mismatched pillow cases I currently have, the image of that magic UBank mortgage graph and the magic mortgage number comes up and urges me to gently walk away. I am so close to achieving my mortgage repayment goal now, and I really want it.
  9. Reducing my grocery budget to below $10 a day. I don’t find this too onerous, and I believe we eat very well. I am certainly good at cooking meals that cost $5 to prepare. Last month my spending was just over $11 a day, but it averaged just over $8 a day for the last two months. And would you believe my cupboards are STILL bulging and my freezer is completely stocked. I am finding that I seem to attract food. I guess people know I am frugal, so they tend to give me things. Which I always receive with gratitude. And I am great at spotting items on special, and reducing food costs by homemade and other options.
  10. Earning extra income from writing. OK, so I am not earning enough to quit my day job (yet), but I am grateful for the validation that I am a professional writer. I love the feeling of transferring my creativity into writing, and how my writing income is in turn helping me own my own home. And I am visualising the small trickles of money that I am earning from my writing turning into a fast flowing river (or perhaps even an ocean).

Using all of these methods, at the half-way point I am on track to meet my Christmas target. It will still be tight, but I have confidence I will get there. That’s the thing about focusing on a goal using the Law of Attraction: when you are clear about what you want, and focused in gratitude on receiving it, somehow the universe provides. Each and every time.

Are you focused on paying off your mortgage?  Or have you paid it off already?  If so, what methods did you use?

 

What’s Your opinion?


Post a comment
Please login to post your comments, or connect with
14 Responses to
Ten things I am doing to pay off my mortgage by Christmas
1
jules_from_latham 9:27 am
06 Jul 16
#

Why would you advocate selling income producing assets such as an investment property and shares, in order to pay down debt? This is a very strange concept to me. Once the debt is payed off, what happens next – you essentially have to keep working to pay the bills, whereas if you have an asset base that is income-generating, you could potentially be heading to not working and living off the passive income – a far better outcome for many people!

If you can get past this, then some of the ideas to reduce the mortgage are not within reach of many people who do not have shares and an investment property – and is it appropriate to expect other people to supplement your grocery bills in order for you to reach your debt management goals?

I think this is a case-specific example that is not really transferable to other circumstances, and therefore not particularly helpful.

2
devils_advocate 11:18 am
06 Jul 16
#

I have enough cash to pay off my mortgage but won’t because there are better returns to be had with that cash at the moment.

Having said that, I got to this position through a different approach – my efforts have tended to be focussed more on the income side rather than the outgoings side, and reducing the initial capital cost. Things I have done:
1) get into the market as early as possible to build a habit of enforced saving. I took on my first mortgage as a teenager, and never got into the habit of spending all my income.
2) Invest in useful education and professional qualifications – these deliver higher salaries which helps pay back debt faster.
3) Undertake property developments or builds with like-minded friends of families, rather than going it alone. Half a dozen of you can negotiate with builders, designers etc from a position of greater strength than any of you acting alone.
4) Don’t take on debts you can’t realistically handle, this will lead to selling at a time that doesn’t suit you.
5) don’t try to pick the market, property is a long-term investment
6) don’t buy apartments (especially the cr@ppily built ones in Canberra), invest in land value

One savings measure I do believe in is to become sufficiently capable in home renovations, car maintenance and residential planning to avoid paying trades unnecessarily. I haven’t been to a mechanic in over a decade, have saved thousands in maintenance and as a side benefit have learned build big (and reliable!) horsepower into ICEs.

3
Grail 11:41 am
06 Jul 16
#

For those without six figure incomes and tiny mortgages, have a look at Envelope Budgeting. This is similar to the budgeting technique Serina is using: you work out how much you need to pay for bills and expenses through the year, then divert a fraction of each pay to an account specifically for those expenses.

I use an app on my phone calked “Pennies” where I set the amount I am allowed to spend each pay cycle, and it tells me how much I am allowed to spend each day. So rather than changing my mind about that Florentine while waiting in line, I look at Pennies, figure that $2.50 is most of my day’s budget and move on without tortyring myself.

A good option is to use an offset account which all your income goes into and your regular bills and expenses come out of. Use a budgeting app rather than your account balance to control spending.

Hunting for a lower interest rate is important, as is finding extra income. Renting out a room is a great way to get some income from your asset!

That is my advice, which I am barely disciplined enough to follow myself 😀

4
Acton 11:42 am
06 Jul 16
#

This is a very informative and useful posting. You are not just on track, but steam-rolling towards your goal of paying off the mortgage. What makes it even more impressive is that you are doing this on a single income.
Paying off the mortgage and owning your own home has been and will continue to be the Australian formula for financial security and wealth creation. It does work. Once you kill off that mortgage you will have an enormous boost to your savings, which you can then use to give yourself a well-deserved dream holiday, a replacement car, another property or a serious share portfolio aimed at producing income for life.
As you say, you are achieving all this by working hard, living frugally and investing. I think the easiest to grasp, but the hardest to implement is the ‘living frugally’ bit. It means extreme budgeting – examining every bit of expenditure and questioning its necessity. To assist with budgeting pay all bills on the credit card and pay it off completely every month. What else can be sacrificed? Does it pass the ‘Do I need it or do I want it’ test? How much is that so-called smart phone costing?
Preserving some share investments would have given longer term capital gain. Carefully selected dividend producing shares (eg banks and Telstra) can give better returns than an index fund when the dividends increase every year, raising the yield annually on your initial outlay. But it is quite ok to focus entirely on the mortgage at this stage in your life.
Your suggestions are very doable and these experiences can be passed on as guidelines in dealing with life and adversity. You have already outlined the chapters for a book on: “Living frugally – how I paid off my Canberra mortgage and achieved financial security by the age of XX”.

5
rosscoact 1:09 pm
06 Jul 16
#

Nice work there Serina and some good tips.

I dig what you are doing there. Negative gearing, equity access, investment loans are all inventions of the banks to get you into and keep you in debt. There’s nothing like the freedom of having no debt and a year’s worth of money in the bank. It opens your eyes to all the possibilities that debt slaves never have.

6
churl 1:34 pm
06 Jul 16
#

When I looked into taking in student boarders, I was worried that I would be hit with land tax in the ACT:

‘If you own a residential property that is rented, you are liable for land tax on that property. This also applies to boarding houses and multiple dwellings, including dual occupancies and granny flats that are rented. Rent can include cash, services or any other valuable consideration earned in respect of a property for which any form of tenancy arrangement exists.’
http://www.revenue.act.gov.au/duties-and-taxes/land-tax/general-information

7
devils_advocate 2:08 pm
06 Jul 16
#

rommeldog56 said :

When I looked into taking in student boarders, I was worried that I would be hit with land tax in the ACT:

‘If you own a residential property that is rented, you are liable for land tax on that property. This also applies to boarding houses and multiple dwellings, including dual occupancies and granny flats that are rented. Rent can include cash, services or any other valuable consideration earned in respect of a property for which any form of tenancy arrangement exists.’
http://www.revenue.act.gov.au/duties-and-taxes/land-tax/general-information

In addition to that, people are very quickly going to start piling in to tell you about the capital gains tax implications of renting out part of your property, but if your goal is to pay it off presumably you want to live in it for the foreseeable future so it’s not an immediate concern.
In any case, the tax liability would be offset by the interest savings from having a fully paid off house!

Obviously not all the suggestions are applicable to everyone but the list does prompt some outside the box thinking so well done.

8
Masquara 8:06 pm
06 Jul 16
#

Glad you took time out to eat at Molto!

9
Shart 1:47 pm
13 Jul 16
#

Thank you for sharing the post. I just took a home loan and I think it will be quite helpful.

10
wildturkeycanoe 8:01 am
14 Jul 16
#

It’s easy to pay off a mortgage if you already have investment properties and shares to sell. What if you haven’t got these assets or any other big ticket items?
We don’t have a granny flat or a spare room in our house, so we can’t get boarders in to help.
We can’t refinance because our work and payment history has been screwed up by injury and health issues.
When your mortgage is over half your take home income, there is realistically nothing you can do to make your budget situation good enough to pay the mortgage any earlier, it is a struggle to keep on top of it the way it is.
It must be nice to be wealthy enough to have the freedom to shop around for finance, not have to be concerned every week about if there is enough left of the pay packet to meet the cost of housing and utilities, before considering the weekly grocery budget.
I still laugh at $10 a day food budgets. Our kid’s lunches alone are that much every day and I am not into starving them to death because we can’t afford to eat properly. They are active and need nourishment but meats, fruits and all the healthy stuff they need is so overpriced.
Without decent wages, most people won’t pay off their houses until they reach retirement age, by which time they will have to sell their home to afford the cost of health care for their tired, overworked bodies. There are two classes of people in this world, the rich and the poor. The middle class has been policied into extinction by government. You are nowadays either a wealthy business owner/high paid executive, or you are a blue collar slave, there is no in between. Wages have been stagnating if not going backwards for about the last ten to fifteen years, whilst housing costs have consistently risen out of reach of the working class.
I’m coming across as a tad bitter about all this, only because life has been giving me lemons for so long. The home, the mortgage, is the biggest concern for many people and if that looks to be in jeopardy then it is hard to look at anything in life with optimism. Governments have been consistently attacking the welfare system, robbing people such as myself of the only crutch that has supported their dreams of home ownership. Reductions in family tax benefit, removing first home buyer grants, increasing rates and utility bills far in advance of inflation and income indexation plus making welfare benefits harder to access and maintain are forcing people out of home ownership. It is hard enough to find a decent paying job and you can’t find affordable housing through buying or renting in Canberra either, especially if you have a family to support. Without a roof over your head you are technically homeless.Housing should be affordable for the poorest of us. Homelessness should be eradicated. But governments want money and developers want money and builders want money. Where is at all going I ask you? Big business, the banks, the government.
It all comes down to the old saying, “The poor get poorer while the rich get richer”.

11
rosscoact 11:25 am
14 Jul 16
#

Kim F said :

When your mortgage is over half your take home income, there is realistically nothing you can do to make your budget situation good enough to pay the mortgage any earlier, it is a struggle to keep on top of it the way it is.
It must be nice to be wealthy enough to have the freedom to shop around for finance, not have to be concerned every week about if there is enough left of the pay packet to meet the cost of housing and utilities, before considering the weekly grocery budget.

It all comes down to the old saying, “The poor get poorer while the rich get richer”.

A timely reminder that there are many people in our society that struggle to do the things that many of us take for granted. I have no answers and have been fortunate in that I haven’t had to face the up-hill battles that you have had to. I am grateful for the life-chances I’ve been lucky enough to have.

Thank you for the reality check.

12
Heavs 2:25 pm
14 Jul 16
#

Kim F said :

It’s easy to pay off a mortgage if you already have investment properties and shares to sell. What if you haven’t got these assets or any other big ticket items?
We don’t have a granny flat or a spare room in our house, so we can’t get boarders in to help.
We can’t refinance because our work and payment history has been screwed up by injury and health issues.
When your mortgage is over half your take home income, there is realistically nothing you can do to make your budget situation good enough to pay the mortgage any earlier, it is a struggle to keep on top of it the way it is.
It must be nice to be wealthy enough to have the freedom to shop around for finance, not have to be concerned every week about if there is enough left of the pay packet to meet the cost of housing and utilities, before considering the weekly grocery budget.
I still laugh at $10 a day food budgets. Our kid’s lunches alone are that much every day and I am not into starving them to death because we can’t afford to eat properly. They are active and need nourishment but meats, fruits and all the healthy stuff they need is so overpriced.
Without decent wages, most people won’t pay off their houses until they reach retirement age, by which time they will have to sell their home to afford the cost of health care for their tired, overworked bodies. There are two classes of people in this world, the rich and the poor. The middle class has been policied into extinction by government. You are nowadays either a wealthy business owner/high paid executive, or you are a blue collar slave, there is no in between. Wages have been stagnating if not going backwards for about the last ten to fifteen years, whilst housing costs have consistently risen out of reach of the working class.
I’m coming across as a tad bitter about all this, only because life has been giving me lemons for so long. The home, the mortgage, is the biggest concern for many people and if that looks to be in jeopardy then it is hard to look at anything in life with optimism. Governments have been consistently attacking the welfare system, robbing people such as myself of the only crutch that has supported their dreams of home ownership. Reductions in family tax benefit, removing first home buyer grants, increasing rates and utility bills far in advance of inflation and income indexation plus making welfare benefits harder to access and maintain are forcing people out of home ownership. It is hard enough to find a decent paying job and you can’t find affordable housing through buying or renting in Canberra either, especially if you have a family to support. Without a roof over your head you are technically homeless.Housing should be affordable for the poorest of us. Homelessness should be eradicated. But governments want money and developers want money and builders want money. Where is at all going I ask you? Big business, the banks, the government.
It all comes down to the old saying, “The poor get poorer while the rich get richer”.

I’m reading this in the voice of Casper Jonquil from Mad As Hell.

13
bikhet 4:35 pm
14 Jul 16
#

Mr Money Mustache

Look it up.

14
PETER_WILLIAMS 3:46 pm
28 Jul 16
#

I’ve got a mate who swears that the grass feels different under your (bare) feet when you make that last repayment. During the boom times of the last 50 years or so, most people didn’t have to worry about paying off their homes – the breathtaking growth in property prices did all the heavy lifting. But those days are long gone. Anyone buying a home today is taking on a bloody big commitment – and therefore every little bit you can save helps. Paying off your mortgage faster is the key to helping you build wealth. And it’ll save you a lot of money – and a lot of time. I have bought a house recently too. I plan to make an extra house payment each quarter and increase my payment when I get a raise or bonus. But surely need to check if there is any prepayment penalties. Best of Luck

Related Articles

CBR Tweets

Sign up to our newsletter

Top
Copyright © 2017 Riot ACT Holdings Pty Ltd. All rights reserved.
www.the-riotact.com | www.b2bmagazine.com.au

Search across the site