Learn how to pay down your mortgage quickly and save thousands of dollars in interest along the way.
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1. Systematically Accelerated
Debt Reduction
Techniques to reduce your loan term by years, possibly
decades, by reducing total interest paid to the lender.
Mark Greggs is a credit representative (Credit Representative Number 479393) of BLSSA Pty Ltd (Australian Credit Licence No. 391237)
2. Pay off your home loan in 10 years!
• It’s not just hype, it’s mathematically entirely possible,
and it isn’t difficult to understand.
• It takes the right loan product structure, discipline and
also a key assumption that people borrow within their
means and don’t over extend themselves.
Please note all calculations in this presentation are examples only and each loan will be subject to specific circumstances
3. How it works:
• Let’s take a hypothetical example, and make it a newly married couple
buying their first home.
• He’s a mechanic, on $50,000 PA, she is a school teacher earning the
same, so combined household gross income of $100,000, net $84,406
after tax.
• So monthly disposable income = $84,406 / 12 = $7,033
• They have saved $20,000 together over the last 3 years to put towards a
house deposit.
• They buy a new unit for $350,000.
• Total borrowings ($350k-$20k) = $330,000, add lenders mortgage
insurance and state charges of $11,469, so total borrowings of $341,469.
4. Efficient Loan Structure
All Income
$7,033
Loan
$341,469
Monthly
Expenses
Loan
Interest
They take out a loan product whereby
they directly credit their salary straight
into the loan of $341,469.
Remember, interest is calculated on the
daily balance, so the sooner money goes
into the account, the better.
The loan amount is immediately reduced
by $7,033, so now interest is calculated on
$334,436.
5. Using CreditToYour Advantage
• They live on a budget within their means, and use their credit card for all their
expenses. Simple reason for this – they have up to 55 days interest free on their
credit card.
• They pay it out in full each month from their loan account to avoid extra fees – this
is important.The loan account should include such functionality as bpay, salary
crediting, free ATM access for cash etc – use it like a normal savings account.
• Instead of building a savings balance which earns interest income, which is
taxable, instead save interest payments by keeping money in the loan account
for as long as possible to reduce interest payments.
• This has a long term ‘snowball’ effect. But we’re going to look at this even more
simply.
6. ABC: Always Budget Carefully
• Their monthly expense budget:
• Food - $800
• Petrol - $300
• Telephone - $200
• Internet - $50
• Insurance - $150
• Entertainment - $400
• Utilities - $150
• Rates - $250
• Misc - $300
• Total - $2600
• All these expenses are paid via credit card, which is then swept out to zero balance via the loan account at the end of
the month.
• So the $2,600 stays in their account for the whole month, until it is paid out at the last possible instant.
Credit Card
- UsedTo Pay All Expenses
- Swept Out In Full Every Month
7. Month 1
• Opening balance $341,469
• Less Income - $7,033
= $334,436
• Add Expenses + $2,600
= $337,036
• Add Interest + $1,389
(Interest calculated on 341,469 @ 4.88%)
• Closing Balance = $338,425
• So in the first month they have paid ($341,469 - $338,425) = $3,044 off their loan.
8. Month 2
• Opening balance $338,425
• Less Income - $7,033
= $331,392
• Add Expenses + $2,600
= $333,992
• Add Interest + $1,376
(Interest calculated on 338,425 @ 4.88%)
• Closing Balance = $335,368
Note how the interest has already reduced
from $1,389 to $1,376 in just one month
9. Month 3
• Opening balance $335,368
• Less Income - $7,033
= $328,335
• Add Expenses + $2,600
= $330,935
• Add Interest + $1,364
(Interest calculated on 335,368 @ 4.88%)
• Closing Balance = $332,299
In 3 months they have reduced the loan
by ($341,469 - $332,299) = $9,170
10. Paid In 10Years
• Note for this example I’m calculating interest from the opening balance each
month – their salary would reduce the balance and therefore actual interest
calculation as soon as it is received, but for ease of illustration I have erred on the
high side.
• In 3 months they have reduced the loan by ($341,469 - $332,299) = $9,170
• Also note that interest has already reduced by ($1389 - $1364) = $25 per month, in
just 3 months.
• If everything remained the same, assuming same rate of loan reduction ($9,170 / 3
= $3,056 per month), it would take them $341,469 / $3,056 = 112 months, or just
under 10 years to totally pay out the loan.
• Of course, with reducing interest calculated on the reducing balance, this would
further reduce the term (but let’s not overcomplicate this example here and now,
and err on the high side).
11. In Closing
• Don’t confuse the difference that people will say they are paying extra into
the loan, which is why this works.
• The reality is they aren’t just paying extra, they are in fact paying everything
they can onto the loan and maximizing their situation to be able to pay it out
as quickly as they possibly can
• This can be setup as a single loan as shown or an offset account dependent on
the clients needs analysis and circumstances
• Saving two decades of interest payments. Imagine what a great start this
would be for a couple – to have their mortgage fully paid out by the age of say
35 (assume they married at 25)
