Saving yourself money

stockel · 09-10-2009, 09:27 AM

Hi everyone,

You know nowadays with the internet there are so many great tools right at your finger tips.

Most of you are probably aware of the savings calculators online, anyway I thought I would point them out just in case you were not, below is an example,

http://www.stgeorge.com.au/calculato...t.asp?orc=home

I was just playing with the 'extra repayments calculator' - paying an extra $100 a week on a $200000 30 year loan at 7% reduces the loan to 16 years and saves you $145000 interest!

Also any extra you pay off the loan you can redraw and it was saving you money while in there and you don't have to pay to establish a loan or pay high interest like you would on a personal loan.

The extra money you paid off the loan could be saving you at a 7% rate (the home loan rate), while if it was sitting in a savings account or something they might be paying you 3% interest or something.

Oh yeah and if you have an 'offset account' I think its called then you can use that as an everyday account but any money in it is taken as being paid against you home loan when the interest is calculated and so saves you money.

Anyway a lot of you might know this but I thought it was worth pointing out in case you didn't.

The internet makes things so easy I love it.

Anyone smarter than me feel free to correct me on anything, I just think these are things everyone should know and possibly do - its just that I didn't so maybe others don't.

Cheers

Craig

pauljh74 · 09-10-2009, 06:01 PM

At the start of my loan - minimum payments meant $220 interest and $30 principal/week. Pay an extra $100 and I quadruple the principle repayments and halve the 30 year loan! In 2.5 years I've paid $20k off $150k and right now am paying about $50/week extra and whatever is left sits in the offset account/next car fund.

Mortgage rates are usually higher than deposit rates and you have to pay tax on interest income. You can't claim mortgage interest on your residence back on tax. So you need to make a good 10% return on savings before tax to do better than your (for example) 7% mortgage

Rodp · 09-10-2009, 06:24 PM

Stands to reason.

I pay $350 a week on my loan as a minimum, probably close to $300 is interest alone and $50 is off the principal. If I add an additional $50 to that minimum payment, all $50 is coming straight off the principal. Doesn't take a rocket scientist to see the benefit of even a small addition ontop of your minimum payment.

If you want to save even more.. I get paid straight into my home loan account and use my credit card whenever I can. At the end of the month, I redraw from my home loan to square off the credit card. Without altering how much I spend, I'll cut years off my loan by simply offsetting my interest during that time and utilising a credit card sensibly.

BLKWDW · 09-10-2009, 06:41 PM

We are using our home loan account as our everyday account. According to the bank we have more then halved the loan amount(from 30yrs to 12yrs) in just over a yr. We do pay nearly $100 more a week sometimes more then we have to also. As our bills are paid fortnightly we withdraw what we need on a fortnightly bases to pay the bills and whateva left over stays in the account for house reno's and the next car and knocks off sum interest as well.

Yellow_Festiva · 09-10-2009, 07:23 PM

Exactly right.

People who have a home loan for their main residence should only have a bare minimum of funds sitting around doing nothing in a bank account paying next to nil interest.

Have a buffer in your savings account, say $500-$1000, and anything else gets transfered into the loan as extra repayments. Plan ahead in your diary whan things like pay go in, and when things like repayments and direct debits / credit card statements go out.

I have a 30 year loan, and although I'm only around 20 months into it, I have knocked off around 18 years worth of repayments. I plan to have it totally paid off in 2-3 more years.

Be warned however, this advice DOES NOT apply to investment loans. Pulling money in and out of investment loans and spending it for personal use is breaking the law.

BLKWDW · 09-10-2009, 07:26 PM

Quote:

Originally Posted by Yellow_Festiva

Exactly right.

People who have a home loan for their main residence should only have a bare minimum of funds sitting around doing nothing in a bank account paying next to nil interest.

Have a buffer in your savings account, say $500-$1000, and anything else gets transfered into the loan as extra repayments. Plan ahead in your diary whan things like pay go in, and when things like repayments and direct debits / credit card statements go out.

I have a 30 year loan, and although I'm only around 20 months into it, I have knocked off around 18 years worth of repayments. I plan to have it totally paid off in 2-3 more years.

Be warned however, this advice DOES NOT apply to investment loans. Pulling money in and out of investment loans and spending it for personal use is breaking the law.

Y is it breaking the law?

Yellow_Festiva · 10-10-2009, 12:11 AM

Quote:

Originally Posted by WGN-355

Y is it breaking the law?

Because the interest on an investment loan is tax deductible. You can lower the loan as much as you like, resulting in you claiming less from interest, but if you then decide to pull out 15 grand of that money you yourself put in (say to buy yourself a new car, or fund a holiday) the increase in interest you then pay cannot be claimed as it isn't invested in an income producing investment.

BLKWDW · 10-10-2009, 09:46 AM

So u cant put money in but u can pull money out basically. Yeh?

Yellow_Festiva · 10-10-2009, 10:46 PM

Quote:

Originally Posted by WGN-355

So u cant put money in but u can pull money out basically. Yeh?

If you don't put money in, you have nothing to pull out.

Read the above posts over a few times. Any investment finance should ONLY be used for investment purposes, this is because you can claim interest and expenses as a tax deduction. Once you start mixing investment and personal funds in an investment loan, it becomes messy come time to redraw as to what amount of interest you should / can legally claim.

The home you live in is not deemed as an investment, so the ATO has no interest in the expenses and repayments. This is why you can do what you please with the loan (such as redrawing money for extensions or a new boat).

Anything else, you're best to get advice from people qualified to give it.

The gist of this thread is simple. Pay off loans that are not favourable to you from a tax perspective as soon as you can. And EVERY LITTLE BIT EXTRA helps.

baboon · 11-10-2009, 12:59 AM

Quote:

Originally Posted by stockel

Hi everyone,

You know nowadays with the internet there are so many great tools right at your finger tips.

Most of you are probably aware of the savings calculators online, anyway I thought I would point them out just in case you were not, below is an example,

http://www.stgeorge.com.au/calculato...t.asp?orc=home

I was just playing with the 'extra repayments calculator' - paying an extra $100 a week on a $200000 30 year loan at 7% reduces the loan to 16 years and saves you $145000 interest!

Also any extra you pay off the loan you can redraw and it was saving you money while in there and you don't have to pay to establish a loan or pay high interest like you would on a personal loan.

The extra money you paid off the loan could be saving you at a 7% rate (the home loan rate), while if it was sitting in a savings account or something they might be paying you 3% interest or something.

Oh yeah and if you have an 'offset account' I think its called then you can use that as an everyday account but any money in it is taken as being paid against you home loan when the interest is calculated and so saves you money.

Anyway a lot of you might know this but I thought it was worth pointing out in case you didn't.

The internet makes things so easy I love it.

Anyone smarter than me feel free to correct me on anything, I just think these are things everyone should know and possibly do - its just that I didn't so maybe others don't.

Cheers

Craig

Great find, more people should be aware of this! Good work.

Makes you realise how much interest a bank gets from loans!

Real money is made when you get rid of that house loan and start paying yourself the interest! If you continue to live with the amount you earn as if your paying the bank (in this case your bank account), imagine your surprise after a 10 years to see how much is saved! Also your savings is earning interest!

$200 000 loan at 7% over 30 years is about $332 per week. Add $100 means $432 a week. When your loan is finished and your paying $432 a week to your savings account (not the bank anymore) in one year you'll save up $432 x 52 weeks = $22 464 and thats before interest is payed. That amount over 10 years is $224 640 in your bank account!!!!

Imagine if you payed yourself $434 a week for the last 10 years? You'd could buy that house outright without paying a cent to the bank and it only took you 10 years to buy!! Of course theres a few other things but you get the drift...

Franco Cozzo · 12-10-2009, 05:20 PM

Quote:

Originally Posted by baboon

Great find, more people should be aware of this! Good work.

Makes you realise how much interest a bank gets from loans!

Real money is made when you get rid of that house loan and start paying yourself the interest! If you continue to live with the amount you earn as if your paying the bank (in this case your bank account), imagine your surprise after a 10 years to see how much is saved! Also your savings is earning interest!

$200 000 loan at 7% over 30 years is about $332 per week. Add $100 means $432 a week. When your loan is finished and your paying $432 a week to your savings account (not the bank anymore) in one year you'll save up $432 x 52 weeks = $22 464 and thats before interest is payed. That amount over 10 years is $224 640 in your bank account!!!!

Imagine if you payed yourself $434 a week for the last 10 years? You'd could buy that house outright without paying a cent to the bank and it only took you 10 years to buy!! Of course theres a few other things but you get the drift...

Sounds like I should live at home for the next decade and instead of taking out a loan, wait a while and get a house with my own cash lol. I managed to save up all the money I needed for a brand new Fiesta with no help from the bank, house is obviously much more expensive but I bet I can do it.

Mr Hardware · 12-10-2009, 04:56 PM

100% Offset account for the win. Have your cake and eat it too. I can have as much money as i like in it and it all gets deducted off the principal when they calculate the interested.