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Mortgages – Re-finance And Make Them Work For You

The Global Financial Crisis - hardly a day goes by when we aren’t reminded of it. Devastating certainly, but oh so convenient, especially for governments. Now they have the chance to sort out the mess by implementing half-baked policies that wouldn’t have got through the Senate in a fit under normal circumstances. And if it all goes belly-up, they’ll claim to have done their best in a difficult situation which was none of their making.

Of course it sounds familiar – common folk have been offering the same excuses for mis-management of their own affairs all their lives. Granted, there has always been fall-out from on high; but even when the fat-cats are raining heavily on us, there are still options, changes that can be made closer to home that will help shield the impact and make our lifestyle more comfortable. A few were mentioned in our previous issue, Saving on Credit, and I’d like to tackle the big one here – the mortgage.

One of the most important and effective tools we used to turn our finances and our lives around was actually a cliché – a penny saved is a penny earned. Back in the Australia of the eighties, having a fixed income in times when inflation and interest rates were going through the roof seemed a recipe for disaster. The problem was the same for us as it was for everyone in our situation. We had no way of increasing our income, so cost-cutting to reduce expenses seemed the only way to survive.

The biggest drain on resources was the mortgage, followed closely by credit-card re-payments. Same with the car loan. Staying on top of these was made more difficult by the fact that we were paying back to four separate entities at different times of the month which weren’t always convenient for the budget and frequently caused a cash-management nightmare.

The first thing we did was approach various banks with a view to re-financing. We were looking for someone take over our mortgage and give us some extra cash to pay out both credit cards and the car loan, plus a surplus for working capital. Admittedly, this would reduce our equity in the house, but the monthly interest re-payment on the new mortgage promised to be considerably less than the old setup. Happily, we found a bank that was eager for our business and offering a good deal on what was, at the time, a novel concept – a re-draw facility. We went for it.

It worked like this:
First we paid off the car and cleared both credit cards – 3 high-interest loans gone!!! Next, arrangements were made for salary to be paid directly into the mortgage account. Each payment reduced the debt by the same amount as long as it remained there. At least two pay cheques went into the account each month and we were able to access that money when needed, as if from any other bank account. We just had to ensure there was sufficient left over to make the minimum monthly mortgage re-payment when it became due.

Immediately, we had less to worry about. The bank was taking care of our cash, paying the mortgage from it and, each month, was allowing us to use any or all of what was left over. Whatever we didn’t re-draw simply stayed in the account, reducing both what we owed and the interest payable on it. And that sum was carried over to the next month, and so on. The more we left in, the less it cost us.

Obviously, not every bank is the same and there would seem to be variations in accepted practices in different countries. Even those which are in place at any one time may be changed at the bank’s discretion, often without notifying their customers. So, it is essential for individuals to make their own enquiries before committing to a new plan, then check occasionally to ensure it is still going the way it was set up. In the banking world, nothing is forever.

The revised loan-repayment system was immediately saving us money but that was behind the scenes because the bank handled the transactions. The benefit would only become apparent when the quarterly statement came in. As for the household budget, it looked pretty much the same as it had before we performed our amazing paper-juggling act and we had no more cash in our pockets, less in fact. Like most people, what we had really hoped for was some tangible evidence that we were better off. We knew, however, that patience was needed and we would have to wait until the whole plan had been implemented.

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