With the high price of houses in Auckland at the moment, a number of people are taking on mega-sized home loans to buy their first home. So, now seems to be an ideal time to review a book that details how to pay off that loan faster.
David Tillman used to run a mortgage brokering company in Christchurch and I met him at a few of the Canterbury Property Investors’ Association meetings. David knows his stuff, so I thought I’d check out his book and share it with you.
Hammer That Mortgage is an easy read and I can highly recommend it to anyone who has a mortgage, or is even considering purchasing a house in the near future.
Whilst the main principle is to pay more than the minimum repayment, the clear and easy to read tables show the compounding effect of these small extra payments over the life of the loan. It is mind-blowing how much interest you will pay if all you do is make the minimum repayments over the 30 year term! It is equally enlightening to realise how just a little bit extra each week/fortnight/month can shorten the term of your loan by a number of years. David provides tables showing the amount of interest paid in various scenarios.
I am pleased that a loan amount of $300,000 has been used in most of the book’s examples. This is a realistic figure for a first home buyer to be borrowing and readers should be able to relate to the examples quite well.
Throughout the book an 8% interest rate is also used. This is the industry recognised long-term average home loan interest rate. If you are struggling to pay your loan now at 5%, then yes, you should be concerned!
Hammer That Mortgage also explains the advantages and disadvantages of using a revolving line of credit (a giant overdraft) and whether this loan option might help or hinder you based on your individual circumstances.
I didn’t learn anything myself from the book (other than if you only make the minimum payment on your credit card each month you will not pay it off in your lifetime!) but I found it a nice easy read and believe it would be well worth reading if you are new to the property market.
David Tillman’s website can be found here.