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Article Series: Discover the Best Australian Personal Finance Software for Your Finances!

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PART 8 - Insider Secrets to Beat Your Mortgage using the Personal Finance Software

Personal Finance Software Mortgage Free Sooner
Personal Finance Software Bob & Jill Finances.
Bob & Jill's Story
In PART 8, Bob & Jill are blown away when they discover they can save over $195,000 and to cut 10 years off their debt and mortgage using the smart mortgage tools in the Personal Finance software.
Personal finance software topics covered in this MoneyFormula article:
Personal Finance Software Mortgage Free Sooner Crushing your mortgage
Personal Finance Software Mortgage Free Sooner Mortgage insider secrets
Personal Finance Software Mortgage Free Sooner Banks driven by profits
Personal Finance Software Mortgage Free Sooner Smart mortgage planning
Personal Finance Software Mortgage Free Sooner Your mortgage free plan
Personal Finance Software Mortgage Free Sooner
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Crushing Your Mortgage using the Personal Finance Software

Once you have cleared your bad debts and your emergency fund is topped up, it is time to move on to one of your biggest financial goals, crushing your mortgage.
The financial freedom of owning your own house, rent free, with no bank looking over your shoulders is a dream worth working for.
It also frees up a huge amount of your monthly income when you no longer have to fork out 30% of your wages to the bank.
In this article we will cover the different ways MoneyFormula will help you beat your mortgage, but first let's look at some of the facts the banks don't want you to know about your loans.

Mortgage Insider Secrets and the Personal Finance Software

There are two very important facts you need to know about the banks before you start crushing your mortgage.
FACT 1 - Banks Are Driven By Profits
Your mortgage repayments have been set up to maximise the bank's interest and profits.
You will repay over 2 times the amount you borrow if you don't make extra repayments.
After 22 years of repaying your mortgage you will still owe over 1/2 the original amount your borrowed.
Making extra repayments will save you thousands over the life of your loan!
FACT 2 - Banks Make Mistakes
Every major bank in Australia has been caught overcharging their clients millions and millions of dollars.
An error on just your mortgage is unlikely to be noticed as it is too small for the bank to pick up.
A simple typing mistake or computer glitch is all it takes.
In the rest of this article we will look into FACT 1 - Banks Are Driven By Profits along with ways to crush your mortgage.
In PART 10 - MoneyFormula Bank Errors we'll dive into FACT 2 - Banks Make Mistakes
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Banks Driven By Profits and the Personal Finance Software

Let's start by having a look at some of the numbers and what your bank has planned for you over the life of your mortgage.
The Bank's Way
In the first chart below we can see the balance of a $700,000 mortgage being paid off over 30 years using the banks standard repayments.
Personal Finance App Mortgage Free - Standard Bank Repayments.
Personal Finance App Mortgage Free - Standard Bank Repayments.
Now, let's add some lines to show where we have paid off half of the mortgage and the balance has gone from $700,000 down to $350,000.
Personal Finance App Mortgage Free - Standard Bank Repayments Halfway.
Personal Finance App Mortgage Free - Standard Bank Repayments Halfway.
Despite paying the bank over $1 million in the first 22 years, only $350,000 of that has gone towards paying down the mortgage and you still owe the bank 1/2 the original amount you borrowed.
Personal Finance App Mortgage Free - Standard Bank Repayments 22 Years Later.
Personal Finance App Mortgage Free - Standard Bank Repayments 22 Years Later.
The banks have set things up so that $705,418 of your initial repayments go to them in interest charges and towards their multi-billion dollar profits.
Personal Finance App Mortgage Free - Bank Billion Dollar Profits.
Personal Finance App Mortgage Free - Bank Billion Dollar Profits.
By the time you get to 30 years you have repaid twice the amount you originally borrowed, so that $700,000 you borrowed has cost you over $1.5 million.
Personal Finance App Mortgage Free - Repay Over Twice Original Borrowing.
Personal Finance App Mortgage Free - Repay Over Twice Original Borrowing.
Great if you are a bank, not so good for us homeowners.
Making Extra Repayments
But let's take a look at what happens when you make extra repayments.
Using the same example from above, we can see that the monthly repayments are approximately $4,200 per month.
Personal Finance App Mortgage Free - Monthly Repayments.
Personal Finance App Mortgage Free - Monthly Repayments.
If we were to increase the repayments by just $250 extra a month, we can see that it would cut 4 years and 7 months off the loan and save us $131,744 in interest charges.
Personal Finance App Mortgage Free - Monthly Repayments.
Personal Finance App Mortgage Free - Monthly Repayments.
... or if we set up a plan to cut 10 years off our loan we could save over $307,265 in interest charges.
Personal Finance App Mortgage Free - Cut 10 Years Off Your Loan.
Personal Finance App Mortgage Free - Cut 10 Years Off Your Loan.
Do You Trust Your Bank?
So the question is how much so you trust your bank?
You see the problem is, we all fall into the trap of letting our banks manage and plan our loans.
We let them tell us how much to repay and how often, and
We let them calculate out interest charges and fees.
Then, we just keep paying what they tell us to and we don't question their numbers.
But what if they get it wrong?
And what if their repayment schedule isn't right for you? What if it's more about their profits than you being debt free?
With so much of your money at risk should you really be letting someone else manage your mortgage for you?

Smart Mortgage Planning using the Personal Finance Software

Let's look at how you can use MoneyFormula to stop relying on your bank and take control today.
We will start by looking at the MoneyFormula planning reports that use the current balance, along with the latest interest rate and repayment amounts, to help you take control of your mortgage.
Interest Rate Rise Report
The first planning report is the Interest Rate Rise calculator that takes the guessing game out of interest rate rises.
In PART 1 - Personal Finance App Bank Accounts, Bob & Jill set up their mortgage, so to run the report all they have to do is enter a new interest rate to see the impact.
Their current rate is 5.37% so to find out what a 1% rate rise would do they just enter 6.37%
Personal Finance App Mortgage Free - New Interest Rate Rise.
Personal Finance App Mortgage Free - New Interest Rate Rise.
Straight away the report shows them how much their repayments will go up by each month (an increase of $336.53) as well as the total cost that is going to be added over the life of the loan (an extra $103,314 in interest charges).
Personal Finance App Mortgage Free - Interest Rate Rise Summary.
Personal Finance App Mortgage Free - Interest Rate Rise Summary.
As well as the summary of the interest rate change we also get a table with all the details below it with the two different scenarios and the impact it is going to have.
Personal Finance App Mortgage Free - Interest Rate Rise Impact Table.
Personal Finance App Mortgage Free - Interest Rate Rise Impact Table.
So as you can see, using this interest rate rise report is very easy to see what a rate change will do to your repayments and allow you to plan and budget in advance for different scenarios.
Extra Payments Report
The second report is the Extra Payments calculator which lets you enter an amount to increase (or decrease) your current repayments by and instantly see the impact on your mortgage.
This can be really handy if you want to work out if you put a little extra into your mortgage will it make much of a difference and is it worth it.
For example, if Bob & Jill add $100 to their mortgage repayments how much will they save and how many years you they cut off their loan.
Personal Finance App Mortgage Free - Making Extra Payments.
Personal Finance App Mortgage Free - Making Extra Payments.
The report instantly show us that it will trim 1 year and 6 month off their loan and save them over $32,000 in interest charges.
Personal Finance App Mortgage Free - Import of Making Extra Payments.
Personal Finance App Mortgage Free - Impact of Making Extra Payments.
... and again the table at the bottom gives them the details and lets them compare the two scenarios.
Loan Payout Options
The third report is the Loan Payout Options which is s a great way to lock in a debt free date and find out what you have to do to achieve it.
So if you want to be debt free by a certain date, e.g. a big birthday, or before you retire, etc. you can pick a date and see the new repayment required to achieve your goal.
For example, if Bob & Jill want to cut 10 years off their mortgage, they can choose the Payout Type of "Reduce Loan Term By"
Personal Finance App Mortgage Free - Reduce Loan Term.
Personal Finance App Mortgage Free - Reduce Loan Term.
... and then enter the number of years and months to cut the loan by.
Personal Finance App Mortgage Free - Cut 10 Years Off Mortgage.
Personal Finance App Mortgage Free - Cut 10 Years Off Mortgage.
The summary will instantly show you what you have to do to achieve your goal including your new repayments and how much you will save, with the table at the bottom letting you compare the current bank's way to your new payout option.
Personal Finance App Mortgage Free - Cut 10 Years Off Mortgage Results.
Personal Finance App Mortgage Free - Cut 10 Years Off Mortgage Results.
So that's a quick review of the three planning reports and how they can help take the guesswork out of your mortgage and give you all the facts you need to make important decisions.

Your Mortgage Free Plan using the Personal Finance Software

While the planning reports covered above are a good start, one of the really powerful things you can do with MoneyFormula is go into your Crush My Mortgage wealth goal and lock in one of these payout options to keep you on track to achieve your goal.
Let's go back to Bob & Jill's wealth goals we set up in PART 2 - MoneyFormula Wealth Goals and choose the Crush My Mortgage goal details.
Personal Finance App Mortgage Free - Crush My Mortgage Goal.
Personal Finance App Mortgage Free - Crush My Mortgage Goal.
Under the goal detail's account list we can see that their mortgage is being paid off using the Money Flows mortgage payout option (which is the default), and relies on the amount we put into the Wealth Goals money flow & bucket in our budget.
Personal Finance App Mortgage Free - Money Flows Payout Option.
Personal Finance App Mortgage Free - Money Flows Payout Option.
If we expand the mortgage information we can see that the calculations are all currently based on $50 a month from their budget, and it gives us a summary of when we will be debt free and how much we will save.
Let's go in and edit this setting...
Personal Finance App Mortgage Free - Edit the Payout Option.
Personal Finance App Mortgage Free - Edit the Payout Option.
Instead of relying on the money flow from our budget, let's lock in Bob & Jill's goal to cut 10 years off their mortgage, by selecting "Reduce Loan Term By"...
Personal Finance App Mortgage Free - Edit the Payout Option.
Personal Finance App Mortgage Free - Edit the Payout Option.
... and then entering the 10 years.
Personal Finance App Mortgage Free - Lock in Cut 10 Years Off Mortgage.
Personal Finance App Mortgage Free - Lock in Cut 10 Years Off Mortgage.
When they save the changes, the exact amount they will need to pay to achieve their goal is displayed, including the banks minimum of $3,220 and the extra payment required of $1,119.
Personal Finance App Mortgage Free - Updated Payment Option.
Personal Finance App Mortgage Free - Updated Payment Option.
... and if we expand out the Debt Repaid By information we can see they will be debt free 10 years sooner and save over $195,000.
Personal Finance App Mortgage Free - Savings of over $195,000.
Personal Finance App Mortgage Free - Savings of Over $195,000.
What's really powerful about locking in this target, is as they move forward and start making extra repayments, as their balance and interest rates change, and so on, the numbers will constantly be updated so they know exactly what they have to pay to stay on track to be debt free 10 years sooner.
So instead of just using a static money flow amount from your budget, this option constantly tells you the payments you need to achieve your goal, based on all the latest facts.
So it is another approach you have available to you when it comes to paying down your mortgage. You are not just limited to money flows and buckets, but instead you can pick specific end dates or loan reduction strategies and see exactly what it will take to pay off your home loan sooner.
What Next?
In this article we've covered the insider secrets the banks don't want you to know about your mortgage along with the smart planning report and the ability to lock in your own mortgage free date - and achieve it!
Bob & Jill were able to review the impact of interest rate rises, what extra repayments would do to their mortgage and what it would take to cut 10 years off their mortgage. They have now locked in the debt reduction strategy on the Crush My Mortgage goal so they have the exact figure they need to achieve their savings of over $195,000.
PART 9 - Beat the Cost of Living with a Simple Spending Review
In PART 9 - MoneyFormula Spending Review, Bob & Jill are going to load their recent spending transactions and find out exactly where there income is going and where they can make savings.
For more information on how to supercharge your personal finances and unlock the thousands of dollars you are missing out on refer to the Personal Finance App Overview.
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PLEASE NOTE: The information in this article is general in nature. It does not take into account your personal objectives, financial situation or needs. Please speak to a qualified financial adviser if you need specific advice on your finances.