One of the most common things in life is people looking for shortcuts. Everyone wants to know the “life hack” or “one trick” or “secret method” to get a six pack or get rich or be happy. It’s one of our biggest flaws as a species to try and seek out these shortcuts rather than properly understand the problem and instil the long term habits that are actually required to solve them.
You don’t get a six pack by taking a magic pill or buying the Ab-Master 6000. You get them by reducing your calorie intake – in a healthy way – over a period of time so that your body reduces its fat levels and your abdominal muscles can actually be seen.
When it comes to mortgages it’s no different. Everyone wants the “trick” to all of a sudden make their 30 year long, $700,000 mortgage disappear and they want it now! I’ve tried to condense the overall method down as much as I can but it is still quite decent to explain fully so today I’m introducing a new, even shorter approach.
Not As Effective
To begin with I want to state that this new approach isn’t as effective as The Official Mutilate The Mortgage Strategy. The official strategy is designed to go essentially as far as you can to pay off your mortgage. It took our 30 year, $400,000 mortgage all way down to 6.5 years and has given amazing results to others as well.
We paid off our $380,000 home loan in 3.5 years in 2010. Lots of hard work and sacrifice but it was worth it! – Huy
But while this new approach isn’t as effective, it is far simpler and easier to execute. It is also a once off piece of work and if you’re a regular reader around here I’d imagine you’re already doing it.
The One Simple Trick
While I detest click bait titles like the header above, let’s explain what this simpler approach is.
Step 1: Increase your mortgage repayments by $200 per week.
That’s it! I said it was simpler!
Now I’m suggesting this because of a few reasons. To start with it’s absolutely dead simple to explain. If anyone is reading this and wanting to know just one single thing to do to get the biggest bang for their buck, this is it.
By doing this one, single change you can cut a $300,000 loan at 4.5% in half and save almost 16 years of debt repayments! With just one change! There’s no complicated strategies, formulae, math to do or processes to understand. You’re paying more into your loan, so it will end quicker. Easy.
The next main reason is that this change is something that can be done in a few minutes and all by yourself. You don’t have to renegotiate contracts or speak to other people or even your bank. You can make this change entirely online with a few quick clicks.
And finally the other main reason I suggest this trick is because it isn’t too extreme in nature and I think can be adopted by the vast majority of mortgage holders out there. $200 a week isn’t anything to sneeze at, but also isn’t anywhere near as extreme as the Official MTM Strategy which recommends putting 70% of your after tax salary towards your mortgage.
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It’s this combination of simplicity, ease of execution and results that I hope will convince even more people to seriously tackle their mortgage and get those amazing results. But what type of results can you expect from this “quick and dirty” approach? Let’s take a look!
So now that you know what the “one trick” is, let’s take a look at the kind of results this new, more simplistic approach achieves. Below is a table that shows the number of years you’ll save simply by paying an extra $200 per week for a whole range of mortgage sizes.
So just like the example I gave before, if you have a loan size of roughly $300,000 and pay $200 more each week onto it, the result is it’ll only take 14.2 years to pay off rather than the standard 30. As a result, you’ll save 15.8 years of repayments. Pretty dramatic for literally 5 minutes worth of clicking on a bank website.
|Loan Size||Normal Loan Term||New Loan Term|
(Paying $200/Week More)
|In all examples the mortgage has an interest rate of 4.5%.|
|$100,000||30 Years||7.1 Years||22.9 Years|
|$200,000||30 Years||11.3 Years||18.7 Years|
|$300,000||30 Years||14.2 Years||15.8 Years|
|$400,000||30 Years||16.3 Years||13.7 Years|
|$500,000||30 Years||17.8 Years||12.2 Years|
|$600,000||30 Years||19 Years||11 Years|
|$700,000||30 Years||20.1 Years||9.9 Years|
|$800,000||30 Years||21 Years||9 Years|
|$900,000||30 Years||21.6 Years||8.4 Years|
|$1,000,000||30 Years||22.3 Years||7.7 Years|
As you can see, the larger your mortgage is, the less effective the trick gets. However for the vast majority of people, their loan size will be $500,000 or less. This means that you will be saving anywhere from 23-12 years of repayments and hundreds of thousands of dollars in interest too.
Beyond The Results
Now I understand that diverting the $200 from other expenses to your mortgage might be tricky for some to find. You probably have all sorts of things you need to pay for like bills, petrol, food and so on, I get it.
But just think about what this will mean for you and your families future. If you have that $300,000 mortgage you could be completely free of it within 14 years. Less if you’re already part way through paying it off.
If you have a young child, that mortgage repayment money could be redirected to paying for their school fees or even private school fees if you decide to go that route. It could be used to upgrade to a bigger, nicer property that’s closer to work or that’s closer to better schools and has a backyard or more bedrooms. It could enable you to take the whole family on regular vacations overseas.
There’s a lot of things you can spend your money on from coffee to cars. When you use this trick you get the advantage of the compounding effect working in your favour. And while it’s not nearly as effective as the full on strategy – which would take the loan term well under 10 years – it’s an amazingly quick and simple first step that I honestly hope you will take. Your future self and family will thank you!
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).