Down the middle
Make the most of a pay rise by splitting part of it off into your home loan, writes mortgage adviser Mike Columbus.
One of the strategies some of our clients use to attack home loan debt is diverting part of any pay rise into their mortgage.
As an example, assume that over the next 20 years you receive a job promotion every three years, which includes a pay rise averaging $3000 per year.
For this we use half of the pay increase ($1500 per year) to make extra mortgage repayments.
The nice aspect of getting a pay rise is that it constitutes new money going into your finances. So if we divert half of it, you will not notice the loss plus you still have the remaining half to spend on living costs.
For the example I’ll use a starting mortgage of $420,000 on a 30-year term.
Even if we only utilise the proceeds from two promotions, at the three-year and six-year points the difference is still stark.
The two annual injections of $1500 will take almost five years off the term and result in $85,000 of interest savings.
This is a nice, easy system to run as well. Any time you are due for a promotion you just adjust your loan repayments to increase by the desired amount.
❚ Mike Columbus is a founder of sortmymortgage.co.nz and can be contacted on 03 335 3527. This article is an extract from Sort My Mortgage (What Your Bank Doesn’t Want You To Know). For a free copy email firstname.lastname@example.org. This advice is of a general nature; before acting on it please read the disclaimer, which can be obtained via email.