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Today I’d like to tell you a story about a young couple that used the exact MTM strategy to save an obscene amount of money – stress free. But first a quick question:
What would you do if your mortgage was gone in
7 years from now?
We’d have enough income for one of us to stay at home
with the kids all year round
We could use that money for us! To do fun things, to travel
and really enjoy our lives
I’d feel safer knowing that even if I lost my job, we’d still have a roof
over our head that no one could take away
I’d be able to better provide for my family, pay for my kids
education and our retirement
We all want to put more money towards our mortgage but finances are boring and numbers are complicated and just doing nothing seems to be working out fine… so why bother? Instead we tell ourselves that it’s “normal” or that our loan “isn’t that bad and Bob’s is WAY higher than ours so it’s fine“.
How often have you heard:
Mortgage debt is good debt
I’d say most of us have heard it at least once or twice in our life, but just because home loans have a lower interest rate or are more socially acceptable (unlike Credit Cards) doesn’t mean the interest repayments are any less real. In fact they’re more real because they’re often substantially bigger. Some people worry about their mortgages, Winners on the other hand destroy them and move on to bigger and better things. However these people aren’t doing anything magical, they didn’t win the lotto or get paid $600,000 a year. They just did one simple thing, the right simple thing (I’ll share this below) and then got on with their lives.
Meanwhile most of us just sit there and day dream saying things like “if I won the $30 million dollar draw tomorrow night I’d…” or even worse, waste hours and hours chasing after the quick fixes or countless tactics that never do anything. We try and try and then after a few years sadly realise that our mortgage really hasn’t gone down very much (if at all) and that we’ve wasted all those years working hard for nothing.
Some people worry about their mortgage whilst Winners destroy them and move on to bigger and better things
So why do most people fail at paying off their home loan quickly?
I don’t really think about it much at all. It’s like my HELP debt and Super, I just block them out
Winners know that your mortgage is your biggest debt, which means mutilating it will get you the biggest reward. It’s not something they ignore, in fact because it’s their biggest debt, it’s the highest priority!
If you invited me to a financial seminar, there’s no way I’d go!
They know that yes, financial things are a bit boring, but it only takes an hour or two at the start and then it’s all automatic. Even better, that small effort at the start gives them a disproportionate result at the end.
They don’t work one hour and get paid for one hour, the work one hour and get paid for thousands of hours, year after year after year.
I don’t understand all the complicated, boring maths behind home loans
I never learned any of these things in school or from my family
The bank never really explained it all to me very well
Winners know that it doesn’t take much time or advanced mathematical knowledge to understand a home loan and that it’s a skill that’s easy to build.
On a whole, I will probably be in some form of debt right up to retirement I reckon
They know that while everybody else assumes they’ll be in debt forever… they’ll be getting ahead, living a richer and happier life just by making the right decisions at the start.
A Real Life Example – An Automatic $344,857 Saving In 1 Year
Like a lot of people, Alex and Kat were an item for a while and decided it was time to buy a house and move in together. Not knowing too much about the whole process they stumbled through the contracts and negotiations to emerge on the other side standing in their very own (and mostly empty) house. In the back of their minds they both knew what the trade-off was though.
Loan: $400,000. Interest rate: 6.7%.
Minimum Fortnightly Repayments: $1,200. Sentence: 30 Years.
They were a bit worried about such a large amount of debt but it was “good debt” as everyone kept telling them. It was a necessary evil that all people just have to deal with in life you know? Sure it was annoying that every fortnight a huge amount of their hard earned money was being taken away from them. It was irritating to say the least, but they weren’t really too sure what they “should” be doing so for a while they just ignored it. Forgot about it or blocked it out like their HELP debt… best to just ignore it all. Besides, all it did was make them sad that there wasn’t anything they could really do about it.
This was back in 2009, so interest rates were a bit higher but they figured that they should at least pay a little extra to get ahead, it’s the smart thing to do! So in July 2009 they began paying just $100 a fortnight more ($1,300 all up) and felt quite good that they could handle it comfortably.
A few months later in October they propped it up a bit more to $1,450. Sentence: 19 Years.
Even though they were only adding in an extra $250 a fortnight, they had already slashed away 11 years worth of their term! This gave them the encouragement and confidence they needed to continue pushing further and further, mutilating their mortgage week after week and as April of 2010 rolled around they upped it to $1,550 per fortnight. Sentence: 16 Years.
They weren’t just pulling this money out of nowhere either, every now and then they’d spend a few minutes discussing things and deciding where they wanted their money to go. Should it go to buying more shoes or clothes or cool gadgets (of which they already had many) or would they prefer to not buy so much crap and use that money to up their repayments instead?
In June of 2010 they had a much clearer understanding of all the bills, the payments, the money that was going in and out and so they knew they could increase it even more to $1,700. Sentence: 14 Years.
Spurred on by the fantastic results they were seeing for themselves and how easy it was (as it was all automatic), they once again pushed themselves a bit further in July 2010 to $1,900. Sentence: 11.5 Years.
In 1 year and with very little effort, they had taken their 30 year mortgage and reduced it to 11.5 years saving over $344,857 in interest.
They felt great about their mortgage! Proud. Happy that they weren’t throwing away all that money any more. That was money they would keep for themselves, money they would spend on worthwhile things, fun things! In fact they just spent some of it on a holiday going to a beautiful, private island in Fiji.
Dissecting how they got these results:
The couple I’m speaking of is, in fact, my wife and I. Since that first year where we got such fantastic result we’ve pushed harder and harder and gotten even more results. Results that I want to share with you, for free.
Now I’m not telling you any of this in arrogance. I’m not saying “hurrr hurr look at how much better we are“. I’m trying to show you that we’re nothing that special in fact. We’re not earning $400,000 CEO salaries every year, we haven’t received any inheritances. We don’t even buy lottery tickets let alone have won any jack pots. This isn’t a scammy, get rich quick scheme that only works for the people on top or the 0.0001% of people that “make it”. This result was achieved through specific, repeatable actions which you can do too and the results are achievable for everyone, even if you’re on a single income, even if you’ve got children. Heck, even if you are BOTH those things there are Winners out there using this knowledge and getting ahead:
Thanks so for much for ‘Mutilate The Mortgage’. We bought our first home ($370K) this year (in April), and after not being thrilled with the interest I searched and found this site. We’re now on track to pay it off in 11 years with a single income, 3 kids. It is so much more inspiring to aim for that than a droll 30 years. Once it is mutilated we are going to live overseas for 6 – 12 months with hopefully 5 kids in tow, then enjoy working 2 days a week. – April
Thanks for this great website, it’s helping us to look at our income and mortgage from a totally new perspective. Whenever I say we’re trying to pay our mortgage down in 8 years, people scoff and say it’s unachievable and optimistic… MTM has shown me this is completely achievable (and, if anything, 8 years might be a pessimistic approach!) and is giving us the solid strategy to do so. Even with a couple of kidlets under our wings ;) Thank you! – Cat
Everyone can achieve these results, even if you’re on a single income, have kids or both!
So let’s break down how these Winners have gotten such huge results
1. They knew to sit down and create a plan
Sure, this might take an hour to chat about and write down but as said, you will reap disproportionate results. You also can’t expect any results without doing at least some work. The good news is that this is front loaded work and only needs to be done once, but it pays you back year after year.
Pick two categories that you love. Things that you both agree make your life happy, more enjoyable and that you’d just die inside without. These are the things you’ll NEVER take money away from (and may even end up increasing). It could be the sports channel on Foxtell or Netflix. It could be travel or doing your Yoga. It could be reading books or buying the most awesome gaming PC it doesn’t matter. All the other categories though you will want to cut to the bone or eliminate. This is done gradually over time and so not something you need to worry about right away. Also because they are the things you care about the least, it’s actually very easy to decrease them. This together with still doing the things you love makes for a completely different experience than what most people are used to. In fact most people’s happiness levels go up while their spending goes down. I’ve written about this before and when you do want to cut your expenses more I’ve got you covered there too with this huge series covering all the major areas.
From here discuss and agree upon how long you want your mortgage to last. Know that the shorter the time frame, the harder you’ll have to work (but the more results you get). As you can see above though, it really doesn’t take much to bring your mortgage down to sub 10 year time frames. A very quick guide is that if you’re on a single income of around $70,000 per year, you can pay down a $300K loan in 11-13 years. If you’re a dual income of $70,000 per year each, then that same $300K loan will take about 6 years.
Based on this discussion, your plan might go something like “We plan on paying our loan off in 8 years and our two splurge categories will be sports/exercise each week and going out to a fancy restaurant each week with friends“.
2. They automated their extra repayments
With the above plan written down and agreed upon, setup your extra home loan repayments to be automatic. This is the one simple yet hugely overlooked rule to beating long term problems like mortgages. While everyone else uses random, sporadic, once off payments to throw money at their mortgage (like when they get their tax return), Winners know that you transfer consistent amounts week after week, all automatically. You get the best results and there is no pain or effort as it’s totally automatic.
This is going to look different for different banks but they should all look relatively similar as most banks do the same things the same ways. Below is a screen shot of how to setup automatic payments in NAB’s online banking website. First login and then click the “Funds Transfer” and then “New Funds Transfer” links. Then follow these steps:
You can always edit this periodic payment by going to “Funds Transfer” and then “Funds Transfer List” under the menu. This way you can increase your repayments from X to Y any time, any where and you don’t have to talk to anyone.
3. They stayed motivated, were aware of their mortgage and kept pushing
To begin with most are excited to see their loan term go down or just to be doing something (anything!) about their mortgage which is great. You need to continue to pay attention to it every year or so for a few minutes as things do change and because it’s such a lot of money, even the smallest details can cost you a lot.
But the encouragement and drive sometimes wanes and temptation to use the money for other things grows. Persistence is important as even when you’re paying off your huge loan in 6 years… that’s still 6 years you have to be consistent for. The good news is that you will be constantly motivated by seeing real, tangible results each fortnight. Your balance will go down and by quite a lot too! You can even download The Mortgage Planning Spreadsheet and have it automatically calculate the exact day you’ll be free if you want. But mostly you’ll be able to last the distance because it won’t actually feel like sacrifice.
So many financial experts always insist that you have to give up the things you love or work harder to get ahead. But we are human and there’s only so much work we can do, so instead automate your work and give up the things you don’t love instead. Spend more on the things you love and that make you happy and you’ll not only feel better because you’re doing more yoga or Netflix watching, you’ll feel better because in the back of your mind that feeling of irritation about the banks taking your hard earned money each week will be gone. Replaced with anticipation of when the day finally comes, very soon, when that loan won’t be any more. The day when you’ll be free. They day you get your money back!
That feeling, that eagerness expands too when you see the results really taking place. There’s no better motivational force than when you see a plan unfolding exactly as you planned. It’s here you will want to push for more, gut more useless expenses! Get rid of that electricity sucking fridge out the back! Put that small raise you just got straight towards your loan repayments! Everything helps.
You’ve just learnt the secret to saving hundreds of thousands of dollars – automatically!
Now I’d like to give you even more Australian specific content, my gift to you. Enter your email below and I’ll share with you fantastic insights that have helped many people (including me!) save hundreds of thousands of dollars, get their finances under control and set themselves up for a great life.
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).