I was wondering if anyone out there is using
their credit card 55 days intrest free period
to pay off the mortgage / IP loan quicker.
I read about it in Harj Gill’s new book
(www.mortgagefreeaustralia.com). it involves
having a credit card, 100% pure intrest offset
account linked. and you buy everything on Credit
and on the last day you pay off the due amount.
and yeah your work pay goes directly into home
loan (meaning you must have a no penalty on
redraw account). Does it work in the practical
world? Would love to see what everyone thinks.It works fine Sach. The effect isn’t that dramatic though, as it depends fully on how much you have in the offset account. There are lots of con jobs out there that fool people into thinking they are dramatically shortening their loans, but in reality they just end up paying a lot more principal.
I prefer the offset account arrangement, because it puts a “firewall” between your private and non private finances. (careful to not say “parts”!)[
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J.I agree totally with Dogs. I’m just writing an article for The Australian about this. This arrangement can save you from nil to 5% (of interest payable)… not that great really.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.authanks guys, yeah i think in that book it show
rare savings achieved by their customers and
they say that many made a 50%+ saving on
repayments.Hi Sach
My husband & I have been following this method for the past 4 years – and provided you are disciplined with the LOC account & credit card, it works very well – it has enabled us to achieve a large amount of equity in our home in a short relatively short period. We went from owing $110000 down to $50000 (saving a heap of interest compared to a P&I loan), plus we brought 2 cars in that time period.We recently sold this property for 330K – so I think the method has put us in a position to think about IPs
But because you use a credit card for everything – you really have to be disciplined so as to not blow the budget each month[
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regard
Mwow congratulations Mum2Boys,
have you had to be strict with a budget?
what type of budget (pen n paper -or- computer
program)? how many intrest free days did your
credit card have (55 or 62), I have seen some
CC’s with 62 days intrest free.Stuart – would love to see the article when it’s done. My theory for clients on all these ‘ads’ is simple:
There are two ways to reduce your mortgage – (a) lower interest rate or (b) bigger repayments. The ‘managed’ mortgage managers get you the results by encouraging (b) where you put more in AND leave it there, while unfortunately simultaneously charging you a slightly higher rate eg 6.5% on a LOC, whereas 6% on a basic variable if you had the same discipline for repayments would give you even better results.
If all you do is use the 55 days interest free credit card attached to a LOC but make no extra repayments OR pay a cheaper rate then it works out you genuinely save about 4 months on a thirty year loan, whereas a cheaper basic variable rate would take off 3+ years at the same repayment level.
Having said that there’s a lot to be said for constant encouragement to save and the advantages of features like LOC & Offsets, so shop around and choose what suits you personally – just watch out for the hype & know what the facts are.
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MelInteresting topic. Here’s a tip I got from Adelaide Bank when we renegotiated our loan on PPOR a couple of years ago.
We had an Adelaide Bank Visa card that at this point of time was not being used.
She advised me to BPAY from this Adel Bank Visa to clear our other Visa with ANZ when this account was due. The ANZ visa was our everyday spending card.
The BPAY from Adel bank visa was not treated as a cash advance so infact what it meant was that we used the banks money for 2 months interest free whilst saving interest on our revolving credit line!
It was a bit of mucking around but I am sure it did help with the interest on our rcl.[]Mum2boys, I’m sure you’ve sunk a lot more into the principal than you realise. The technique of the con jobs is to disguise the fact that a lot of your income is disappearing into the principal. It’s just pure maths really, not rocket science.
Melanie, I think the best combination is the offset on a smaller LOC loan and the bulk of your loans in a big basic bucket.Hi guys
I tryed using this method but found that i had a credit card i would buy a bit more than usal so now i just get out $50 for spending and live on that if i spend it to quick it’s gone and i have to do with out but it works out good for me.
Thanks Rob
I guess for the credit card method you need a good
strict budget and also keep an eye on the due dates
of credit card payment to make sure you pay the
debt on the very last possible day/dateHi everyone
Yes we did pay a lot of the principal & that was the intention. It is good to look at the balance once a week. It makes me less inclined to spend – do I really need that $100 shirt or is the money better left in the account.Yes, it is easy to overspend when using a credit card (& it is a constant worry for my hubby as we now have a $20000 limit and he thinks I might just have a bit of a spending spree). You need to have a budget & stick to it. Thats not to say you cant go out for dinner or do spontaneous things, but with good software/calculations you can work out how many months that new couch or holiday is going to add to the term.
Sach, our credit card is 55days and has an award program (which we recently redeemed some points for a 68cm TV). Our LOC loan is set up so that it automatically pays the balance of the credit card at the end of the month (I always check on the internet though – cause I dont want that interest repayment)
the budget is based on what we normally would spend on utilities, groceries, the usual P&I repayment etc. I check credit card reciepts weekly to make sure that we are on track (only takes about 20minutes)
Software – for the first few years I used the software that you can subscribe to on the mortgage free Australia website. Recently I have been using different software – both are a good way of keeping track
regards
M[]Wow, a lot of golden nuggets if information….
anyone use PC based budget programs? like Simply
Budgets etc? any other progs out there?
Wow, a lot of golden nuggets if information….
anyone use PC based budget programs? like Simply
Budgets etc? any other progs out there?Hi,
Yes, I use and highly recommend Simply Budgets. As a mortgage broker, I really question the use of LOC accounts and credit cards to try to reduce the term of a loan. As a matter of fact, we know 80% of people on this type of program actually do not reduce the principal balance as they should. Melanie said it earlier, far better to go with a basic variable or offset account and schedule higher repayments. You will achieve the same effect mathematically and at a lower interest rate.
Something I may have missed in the previous posts. While the interest free period may be 55 or 62 days, how often do you receive the statement? Every month, so what’s really the longest interest free period if you pay monthly? 30 days!! Bit of scam I think. Stick with strong budgeting, pay down personal debt first, Owner Occupied Home second and IP’s (on Interest only) last.
Gary Young
Home Loan Connexion
Mobile 0407 64 66 32
Fax +61 7 4636 4841
I agree totally with Dogs. I’m just writing an article for The Australian about this. This arrangement can save you from nil to 5% (of interest payable)… not that great really.Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi Stuart,
Glad to see another broker thinking the way I do. I don’t receive the Australian, any chance of a copy of your article when it’s ready? My email address is [email protected]
Gary Young
Home Loan Connexion
Mobile 0407 64 66 32
Fax +61 7 4636 4841I think there’s value in the off-set/ Credit card set up if you spend a lot. My partner and I spend about $5k a month on our card, so that means we’ve got $5k not being charged interest each month (interest = $25/month).
With our fixed monthly repayement, we pay on average $25 less interest and $25 extra principle. This should knock $9k interest and 1 yr, 5 mths off our loan period. Not huge, but a year without a mortgage is better than one with it, and no change in spending was required.
I think offset loan accounts are fine, but there are not the only ways to reduce interest. In my opinion two of the most basic and BEST ways to reduce your loans quickly and effectively is:
1. Never ever make minimium repayments, always make larger repayments.
2. Make weekly repayments as opposed to fortnightly or monthly repayments (for P&I loans).#1 is pretty obvious, however I’m amazed at how many people do not know about #2 (again P&I loans I’m talking about). Put simply, it only allows interest to compound for 7 days as opposed to letting the interest compound for 28+ days – this might not sound like much but it can make a big difference on a large loan. (weekly as opposed to fortnightly is not that great but still makes a difference).
Anyway, I use a CC for 55 days interest free for all my bills/purchases. All monies received (ie pay, rent etc) go into my 100% offset account which pays my monthly CC statement as well as all my loans (weekly for P&I, monthly for I/O). I also have LOC, though I never touch that…
Thanks all, I keep getting home loan offers for
ALL in ONE accounts, really appreciate the help.
2. Make weekly repayments as opposed to fortnightly or monthly repayments (for P&I loans).#1 is pretty obvious, however I’m amazed at how many people do not know about #2 (again P&I loans I’m talking about). Put simply, it only allows interest to compound for 7 days as opposed to letting the interest compound for 28+ days – this might not sound like much but it can make a big difference on a large loan. (weekly as opposed to fortnightly is not that great but still makes a difference).
I’m sorry OlorinSledge, but this is just another one of those standard cons. The only way you will make much difference is by paying what you would normally pay in a month every 4 weeks, so you end up paying 13/12 more than normal each year. eg if your normal P&I repayments are 2000 per month, you’ll pay $24,000 pa, but if you pay $500 per week, you’ll pay $2166.67 per month or $26,000 per year. This will shorten a 25 year loan by about 3.8 years.
If, however, you pay exactly 2000 per month, but in 4 installments, ie one per week and a bit, then you will save about $3.40 per month in interest. This will shorten your loan by nearly a month, but that month’s repayment will only be worth about $800 in today’s money at 3.5% inflation.
If all your pay goes into a 100% offset account, and you transfer $500 across into your loan every week and a bit, then you won’t make a razoo of difference, because the offset account does exactly the same thing. This is because your interest doesn’t actually compound each week as you say. The interest is calculated at the end of the month, based on the balance of the loan each day, minus whatever is in the offset account, and then added to the loan on the loan cycle date. Eg if your interest is 7%, then the interest from each day is calculated as (Loan Balance that day – Offset Acct Balance that day) X 0.07/365. Each day’s interest contribution is then added together, then added to the loan on the monthly cycle date, ie interest doesn’t compound until that date.
Hope this makes sense. JimHe who hesitates is sometimes saved!…Thurber.
I agree totally with Dogs. I’m just writing an article for The Australian about this. This arrangement can save you from nil to 5% (of interest payable)… not that great really.Cheers
Stu
Property & Finance News
at http://www.prosolution.com.au
That a bit Ruff Stu! (calling me dogs!)[]
How is that article going? Let us know when/if it’s going to be published, or maybe we can email you for a copy?
Regards, Jim.He who hesitates is sometimes saved!…Thurber.
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