Two years ago I moved my home loan from ‘principle and interest’ to ‘interest only’ (just before my first child was born).
I did this out of necessity to survive; the cost of having a baby was taking its toll and the sheer volume of things I needed to buy was insane. The extra breathing space this afforded me was amazing and I have no regrets.
However fast forward two years and I am still on interest-only home loan repayments. There have even been several interest rate drops and again; I am still interest only. My former self would have used the rate drops to repay my mortgage faster by simply keeping my repayments the same, albeit with greater principle getting paid off.
For one reason or another, I have failed to do this and continue to sit pretty on interest-only repayments. I worry I will never repay my mortgage and each day I lose the benefit of compounding reductions.
It’s time to hustle. I am technically two years behind on my mortgage and I’ve decided enough is enough and it’s time to deploy a challenge to stay motivated and really make a dent on my mortgage.
Introducing the Mortgage Challenge
This challenge is about documenting the small but methodical ways I am using to repay my mortgage. I am hoping you too can take up this challenge and find new and regular ways to pay down your mortgage.
Every dollar counts in this challenge and every dollar I repay is quite simply a dollar of debt that will never return.
I am not looking to repay my mortgage in record speed, nor am I looking to over promise on how regularly I intend to make repayments. It’s about consistency and finding wiggle room in my finances to contribute extra money towards the mortgage and then permanently reducing the debt to avoid redrawing.
My hope is that this challenge serves as motivation to you to get ahead on your mortgage.
Now, onto actionable methods I am using to get my mortgage paid off.
The strategies I am currently using to repay my mortgage
1. Once a month permanent principle reductions
I am paid monthly which means that once a month I am flush with cash (albeit often temporarily).
After a few months of culling expenses (reducing what I could, cancelling the things I didn’t need) I have created a small buffer of unaccounted for money in my budget spreadsheet.
This newly found money equates to roughly $350; a sizeable number that I am proud of given that only 6 months ago I was cancelling expenses as little as $15 a month to ensure I could afford groceries.
I am now transferring that money directly to my Loans.com.au low-interest home loan and following up the monthly transfer with a written request to permanently reduce my principle by that amount exactly.
Loans.com.au are great about it, always processing my request within a day or two – even though I imagine a reduction request of $350 isn’t the most ideal way for them to work.
2. Regular micro-payments from my everyday accounts
Whenever I see a dollar or two, or an uneven amount, I am starting to transfer it into my offset account. I won’t miss the money and it’s kind of addictive to constantly send a few cents here and there. I’ve been doing this for a few months now and it’s equated to over $300 – not bad at all.
3. Setting a goal to return to principle & interest payments
I’ve had a good run of interest only payments. While my finances are not 100% ready to return to P&I, I have set myself a goal to do so within 4 months. This gives me time and a chance to further tweak my budget spreadsheet to find extra funds/expenses I can cull in order to help do this.
4. Regular micro-payments after I decide NOT to buy something
Recently I’ve been trying to spend less during the work day. I would normally buy a coffee, breakfast, lunch and the odd Diet Coke (or four) a day. I re-read my article on how to save $4,800 a year (based on bringing your own lunch) and it’s inspired me to instead transfer the money I would have spent on the above into my offset account.
While it may seem time-consuming to forever be logging into my everyday bank account and transferring money – you get a weird sense of satisfaction and boost in motivation by doing so. I am actually really enjoying it.
5. I have updated my share portfolio to pay dividends towards my home loan
I have share portfolio that I try and add to whenever I have the chance. This portfolio pays small but regular (quarterly) dividends (or in laymen’s terms – earnings) back into a ‘dividend reinvestment scheme’ – essentially up until now I have reinvested the earnings into MORE shares. Something I think is very smart to do.
In this instance, however, I have prioritised getting my mortgage reduced over the growth of my actual number of shares. In turn, I have instructed the shares to pay the earnings directly into my offset account. This means there will be a few extra hundred dollars here and there reducing my debt.
6. Once a month I am de-cluttering the house, selling unused items and using the funds to reduce the principle on my mortgage
If you are new to de-cluttering, read this. It’s a great way to minimise your possessions, create space in your home and retrieve money from unused material items.
If you need inspiration on just how much money you could make by selling unused items, read our list of things to sell that are lying around your home.
The more ambitious strategies I am intending to use to repay my mortgage
1. Renting my home out and then renting a cheaper place; using the proceeds to pay down the mortgage
This one will take a lot of effort, however, I am certain from market valuations that I can make a weekly profit by renting my current home out and renting a cheaper apartment somewhere else.
The difference I make can be immediately paid into the mortgage; if I can find a way to pocket $150 a week – that’s an extra $7,800 a year paid off my mortgage.
2. I am going to use this year’s tax return to make a permanent lump sum reduction
Most years come June 30th, I find myself really relying on my upcoming tax return. Often it’s a few thousand or less and is a significant windfall to receive.
This year I am not going to earmark it for anything – I am instead going to add it to my mortgage and quickly make a permanent reduction to the principle.
Why is this ambitious? Well technically I need this money for other things, however, by doing this I am simply ripping the band-aid off, making the payment and getting it out of reach before I have a chance to second guess my decision.
Now it’s your turn
I want to hear from you in the comments what your plan of attack is with your own mortgage. Can you share some ambitious and out there ideas to rapidly reduce a mortgage?
I intend to report back and use an Excel graph to showcase my regular repayments and pay down strategy. Make sure you sign up to our newsletter in order to receive these updates.