Just read an article by Noel Whittaker, who as someone said in this forum pre-dated R.Kiyosaki by about 10years, Noel advocated
Paying $12 per $1000 on your loan
Repaying the mortgage at $12 ex for each $1000 borrowed (i.e $1’800 on a $150 000 loan)will pay it back in about 10 years as long as rates don’t go above 9%. if at 7 per cent repayments of $1’800 per month will pay back a mortgage of $150 000 in 9 1/2 years !! and you’ll pay $56 000 in interest.
For a 30 year term the payments would be $1000 per month and you would pay a whopping $209 000 in interest !!
We all know it makes a difference to pay that ‘little’ bit more on the loan don’t we.. it’s interesting to see it put into perspective.
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Thanks to ALL the regular forum posters who have given me valuable help and an insight as to how to better run my (slowly) growing property portfolio.
REDWING[^] Day before Christmas
[
]Christmas morning
[]Open presents
[]Start Christmas lunch and party
[}]Start drinking
[:0)] Continue drinking
[] Wife Intervenes-stop drinking
[|)] Stagger Home
[xx(] Day after Christmas
[8D] Greet the morning
[?] Memories of the partySorry couldn’t resist.. i’m tired and these little guys were all looking at me !!
REDWING[
]“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Hi Redwing,
I don’t quite understand what you mean. Do you mean that you are meant to pay an extra $12 per $1000 per month, or per year?
Thanks,
LuckyoneAccording to FinSoft 4.2:
$150k @ 7% over 30 yrs = $998 per month
Increasing repayment 10% ($1100) drops term to 22.75 years and saves $59k interest
Increasing repayment 20% ($1200) drops term to 18.75 years and saves $90k interest
Increasing repayment 50% ($1500) drops term to 12.58 years and saves $133k interest
Doubling your repayment to $2000pm drops term to 8.25 yrs and saves $161k interest
Note that increasing repayments by just 20% gives over half the savings of increasing them by 100% at current interest rates.
I like the idea of paying a bit more, but if paying a lot more, I’d be concerned about:
1. you’re using todays dollars to save depreciated future dollars
2. there could be opportunity costs (ie properties not purchased)
3. Tax deductions are lessRegards, Peter
Luckyone..
I believe the $12 per $1 000.oo on the loan is each month, it is not ‘extra’ it is the payment.
My line of thinking was with a tenant paying rent and you the owner adding to that payment you could rapidly reduce the amount of ‘total’ interest over the term of the loan, thereby building equity, possibly turning a – geared property to + geared a bit quicker also !
Obviously as perterp has pointed out there are oppurtunity costs involved too if you are putting a lot of your investment capital into rapidly reducing the one loan.
Thanks to peterp for also adding to the post with the figures… fascinating what’extra’ payments can save you and always worth keeping in mind !
Hope some of you found this as informative and thought provoking as i do
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
That’s why you’d use an offset acct… so that if an opportunity comes up, you can draw on the funds.
I would never want a loan term to go any longer than necessary. While you may be able to claim interest, it still costs you more than paying a loan off quicker.
A dollar as a deduction is at best 47c. A dollar saved is a dollar.
Anita Bell has made a fortune in her books promoting just this.. you know the “how to pay your loan off in 5 years – by someone who did it in three” author
The early years of your mortgage payments can make the biggest difference, i.e on a loan of $120 000 at 7% over 25yrs, if you made just a one-off extra payment of $1000 in the first year, you would save around $4300 in interest and cut off six months from the loan.
if you made the same payment in the fifth year you would only reduce the term by 4 months and cut around $3000 from the interest bill.
As another thought, Quality property supposedly ‘doubles’ in value every 10 years or so, that means if you buy a property valued at $100 000 today and paid IO, you will have Equity of $100 000 in ten years or more.If you have ten houses well.. you have $1000 000. ‘If’ all goes well, as some properties may ‘jump’ in price and others remain stable for many years untill the next boom- this is just an example of figures
REDING
Redwing: Though I like Anita Bell’s books, the assumptions she makes (real house prices about half of today) are unrealistic for capital city residents.
Though many people would be able to use her methods to reduce loans down to 10 years, cutting it down to 3 or 4 is pretty well impossible. (my saving is typically 25-40% of income so it’s not due to over-spending on my part!)
Paying off the PPOR quickly is good, but I’d rather be paying off IPs moderately quickly but seeking to expand the portfolio quicker than Bell suggests.
She is however right to point out the benefits of an early extra payment. An early $5000 payment to a $70k mortgage can reduce the term from 30 to 25 years.
So if you happen to have a term deposit maturing, you now know what to do!!!
Peter
]Christmas morning
]Open presents
]Start Christmas lunch and party
]Start drinking
] Wife Intervenes-stop drinking
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