Use Revolving Credit And Pay Off Your Mortgage Quicker

Revolving Credits are one of those gems that financial advisers like pull out to look intelligent. They are not for everyone, but in my opinion Revolving Credit can’t be beaten! They are flexible and (done the correct way) can help you pay your mortgage off in no time. You can easily reduce the term of your mortgage by 5-10 years and (if you have a mortgage over $300,000) save up to $80,000 in interest.

Because while it isn’t the only path toward financial independence, it is a trusted method that works well with a little discipline.

How does it work?

Using a revolving credit you can place part of your mortgage into your transaction account. It will seem like dealing with a big overdraft but at mortgage interest rates. Any additional money in your transaction account successfully reduces the mortgage balance and therefore you pay a lesser amount in interest.

The main reason many people tend to disregard revolving credit is that is can sound too complicated to the uninitiated. After all, if you handle your mortgage and everyday living transactions all from a single account, what’s to stop it from becoming one giant financial mess? How can you be sure if you’re doing the right thing? And how do you protect yourself from dipping too far into your mortgage money when it appears to be right there to spend?

Multiple Transaction Accounts

The easy answer to working with a Revolving Credit well is to have two transaction accounts, particularly since most banks now have free or reduced cost electronic transaction accounts.

We suggest having your income/wages paid into the Revolving Credit. Your standard costs and the mortgage will be paid from the Revolving Credit. But, for daily expenses set up a weekly automatic transfer to a second transaction account and use that one.

Budget is crucial for anyone with a mortgage, and the easiest budget to utilise for any home owner is based on the premise that your costs should never be more than your earnings. Of course unexpected expenses are sure to crop up – especially if you are taking care of a family – so if you do think you need some more cash you can access this from your revolving credit in emergencies. Making the conscious decision to transfer money out of your revolving credit and into your daily transactions account is far safer than just using one large account, so make this strategy the first thing you put into practice in your revolving credit strategy.

A different popular option for people comfortable with using a credit card is to pop your day-to-day costs on the plastic and then pay off the credit charges ENTIRELY from your revolving credit before the end of the month. As long as you can cover all charges before the credit card company can start charging you interest, using your credit card is a fantastic option because it keeps all your money in your account for longer – therefore cutting down the interest on your mortgage as much as you can. Not only that, but you’ll also have the added advantages of being able to score reward points or even frequent flyer points by using your credit card, so you can indulge yourself for all your successful budgeting work without having to shell out a cent.

What percent should my revolving credit be?

It’s best to speak to your financial advisor for the best guidance on how much you should initially set your revolving credit at. Based on your earnings and costs, most lenders will approximate the percentage of your mortgage you will be able to pay off within a couple of years. This sum will form the foundation to work out how substantial they make your revolving credit.

With the rest of the mortgage we tend to set it to a 25 year term and focus any additional repayment onto the revolving portion. When your fixed rate matures we can then decrease the fixed rate mortgage by transferring some of it across to the revolving credit, and start over!

As well as being able to become debt free faster than you might have ever imagined, one of the other significant advantages of the revolving credit strategy is flexibility. This method of mortgage management not only lets you to become free-hold faster, but is flexible enough to continue to meet your requirements if and when your situation changes. Planning a family? Do you need to slip back to one income rather than two? Revolving credit can even allow you to slow down your repayments if you ever need to, making it a wonderful tool to future-proof your economic stability.

Leave a Reply

Your email address will not be published. Required fields are marked *

Post Navigation


Shares