You know I use a knife to fry my eggs instead of a spatula simply so I don’t have to wash that spatula. To be honest I don’t even wash that knife either as it goes in the dishwasher haha!
Some call this “lazy” as I’m not frying the egg properly and am too lazy to just “do it the proper way”.
I see this as a different type of “lazy”. I see it as being efficient.
Usually “lazy” people can’t be bothered doing whatever the task is at all (for instance cooking) and so will go out and buy McDonald’s or KFC. I on the other hand look at it more in terms of efficiency and where I see a much improved, quicker, less effort and better way of doing something… others see laziness.
So when it comes to mortgages you can bet your ass I’m going to be as lazy as I can! However when dealing with money or something that is usually “hard” for us to do (such as saving) automation not only makes the practice easier and more efficient but it also skirts around a core human crutch.
We have limited willpower.
Yup, “trying harder” or whatever inspirational spin you want to put on it is a load of crap I’m afraid. It’s been scientifically proven time and again that we as humans suffer from a thing called Ego Depletion.
Simply put it means that once we resist something such as eating chocolate or buying a shiny toy vs paying off your mortgage, it’s more exhausting to do it again later. Trying harder is irrelevant and futile. At some point you’re not going to have enough “strength” or willpower to resist and just go “stuff it!” and buy that car or new dress instead.
And this is why automating your mortgage repayments is so crucially important.
Without the extra repayments being consistent and automatic, it’s far too easy and tempting to send that money elsewhere. Even if you’re one of the better ones and only spend it every few weeks or months, you’re still putting yourself through unneeded grief and hardship every pay day when you use your limited willpower to not buy that toy and instead pay down your mortgage.
That willpower that can be put to much better use.
What Others Do
Now if you were to search the web and read all the top ways to pay off your mortgage faster, even by really top writers or financial guru’s you pretty much never see this concept.
They will focus on “changing from monthly to weekly repayments” or having an offset account. Others will say you can save thousands by switching to a better interest rate / bank and they’re right, you can save $10,000+ by doing these things but they never mention automation.
The main reason these “experts” refuse to tell you about automating your mortgage repayments is because it’s not a short cut. It’s not a hack.
And everyone LOVES life hacks or getting something for nothing… but few truly appreciate hearing how to legitimately burn their mortgage to the ground in 7 years because that actually takes some work. They’d rather nibble on the mental candy that is life hacks or tips and tricks and go back to complaining about life and why it’s SO unfair etc etc.
As I’ve set out in my previous post What’s Critical And What’s Worthless, switching from monthly to weekly is just mathematical trickery and saves you virtually nothing when you actually calculate it out:
Ensure you pay your mortgage weekly or fortnightly. This very common “tip” is just a trickery of math. When most people look at this on a repayment calculator they think there’s a huge savings in interest and a free lunch however there is only a very little saving (think around $32/year for a $250,000 loan @ 7.50%). Where this does save a bit more off your mortgage though is that it forces you to make 26 payments per year instead of the equivalent of 24 due to how the months/weeks work out in our calendar system. Obviously with the extra fortnight of repayments you throw more at your loan whilst reducing your interest.
Most of the other “tricks” experts drone on about all fall into the “Things That Do A Little” or even worse “Things That Do Nothing” category which is one of the main reasons I created this website in the first place!
Automation Is Number One
So with humans in general suffering from constant Ego Depletion automation comes in and saves the day.
With your mortgage setup to have your extra repayments automatically taken out a day or so after you get paid mutilating your mortgage becomes the default option. The one that takes no effort.
For once, life is setup by default to help you.
No amount of minor tweaks and hacks are going to see a $400,000 loan reduce to zero in any appreciable amount of time, they just skirt around the edges maybe saving you a few years if you’re lucky.
Compare that with having a default, automatic mortgage repayment coming out each fortnight of $2,000 on TOP of your existing usual $900 repayment. This takes that same $400,000 mortgage from a 30 year sentence to just 6 years.
Now I write all the time about how to get that extra $2,000 a fortnight but for now just imagine being rid of your mortgage in 6 years. Knowing that you’re using your money super efficiently, knowing that you’re making your life better and better each pay cycle and getting closer to the day that you’re truly debt free. Debt free and in a far superior position than most other people struggling out there.
For most people paying off their home in under 10 years is a “dream”. Literally something they believe is impossible and is silly to think of (hence it being a dream!). Paying it down in just 6 years is even more ludicrous like flying to Mars or becoming the next Elle Macpherson!
But it’s very achievable for everyday people.
We paid off our $380K home loan in 3.5 years. Lots of hard work and sacrifice but it was worth it. – Huy
It is hard work and I’m not going to ever sugar coat that because it’s an amazing and almost unheard of achievement to pay off a $400K mortgage in under 10 years but you know what? Automation makes that hard work significantly easier because you don’t have to think about whether or not you’re going to make that extra repayment each week… it just happens while you go about living your life and as you know, life blows by very quickly these days!
You can easily look up and that year has virtually gone and it’s Christmas again but with automatic repayments you can at least have a big upside to this quick passing of time, it means all that time you’ve been crushing your mortgage fortnight after fortnight and that loan amount will have plummeted because of it.
How To Automate
So how do you do it? How do you setup your account to automatically pay off your mortgage for you? It sounds complex…
But it’s not!
In fact it’s very quick and simple to setup plus it seamlessly fits in with your life from day one. For once, dealing with your mortgage/bank isn’t a problem mainly because for most banks you don’t have to speak with anyone to set this up, it’s all done through the online banking interface.
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:
Obviously the “To Account” should be your mortgage, for us the “From Account” was our joint or offset account.
For the repayment amount I would recommend aiming high. Use The Mortgage Planning Spreadsheet to help figure out what your extra repayment can be and then keep focusing on pushing this figure up and up.
Fortnightly and weekly repayments are virtually the same with weekly saving you a few dollars each year in interest so I recommend aligning this with whatever your work pay cycle is for simplicity.
Below is an example of another bank, ING and how you would do it using their system. First Login, then click on the “Transfer & pay” menu on the left, then choose “Transfer Funds”.
Once you’ve set this automatic repayment up you can go about your life and know in the back of your mind that every pay you’re jumping ahead of everyone else out there. That in a definitive, likely sub 10 year time frame your house will be yours and you can move on to bigger and better things.
In a few posts time I’ll be going into more detail about what these bigger and better things can be and why the MTM strategy isn’t just good for your mortgage but your life after mortgage payoff too.
Additionally if you ever get a raise, shave off some expenses or just in general have access to more funds each pay cycle it’s super easy to just login and increase that repayment amount up by any amount. It could be an extra $10 a fortnight if you manage to cut your phone bill down or an extra $500 if you score a huge raise. Either way it helps you to keep things simple and as efficient as possible whilst reducing headaches.
It was fantastic to hear all the results people were getting in the comments last week, feel free to shout out what your “extra fortnightly repayment” is below, I wonder if any of you can top what ours was :D