Too close to call?

Hi all

Good to see the student loan question has got you thinking. And judging by the votes so far this one could go either way…

Pay it or forget it? Here’s what our friend Martin Hawes has to say:

Steph,

My advice on this is simple: forget the student loan at the moment. The recent Government changes that mean there is no interest payable allow you to sit on it at no cost. One day you will have to pay it off – when your income rises. But in the meantime, I suggest that you do not need to worry about it.

Martin

Keep those votes and comments coming, everyone, we’ll see how things turn out next week.

Steph

Week 4, Question 2

Well, thanks to your votes we’re asking the bank to change our mortgage payments to fortnightly. That’s also what my new pay frequency will be, so makes sense.

Following your feedback, we’ll be paying half our current monthly amount each fortnight. It’s going to cost us more over the year, but we’ll have to find a way to make it work. More on that later.

And on the subject of debt, have I mentioned my $13,000 student loan? Probably not, as I haven’t had to make any repayments since I stopped work.

But now I’m earning again I wonder if I should start paying it off – even though I will be under the repayment threshold ($17,160).

Getting rid of debt is our number one goal, and now there’s no interest adding up, the student loan should be easy to knock on the head – well, easier than our mortgage anyway.

Just a bit each month wouldn’t hurt? Worth it?

Steph

Fortnightly vs monthly

The voting so far would suggest this issue is very clear cut, but maybe not...

Here's the Martin Hawes angle on fortnightly vs monthly mortgage repayments:

Steph

This question is not as straight forward as it sounds - there is a lot of
misunderstanding about it.

Fortnightly payments are good for many people because they end up paying a lot more on their mortgage than they were paying before. There is a great saving, but only because they are putting more money against the mortgage. If they pay the same amount of money as they had been, but pay fortnightly, there is only a very minor saving.

Here's what I mean: You're currently paying around $2050 per month. If you decided to pay fortnightly, you might choose to pay $1025 per fortnight. You would in this case make a great saving because you are paying a lot more on the mortgage – as there are more than 24 fortnights each year. When you pay $2050 per month, you are paying $24,600 per annum. But if you pay $1025 per fortnight you are paying $26,650 per annum. That extra $2,050 per annum that you are paying does indeed lead to greater savings, but only because you are paying more.

If you changed to fortnightly payments but still paid the same amount (i.e. your $2050 per month went to $946 per fortnight) you would only have a very small saving over the life of the mortgage - around $225.

So, start to pay fortnightly by all means, and if you pay half of the previous monthly payment, you will make a great saving. However, it could blow the budget - and your budget is already fairly tight.

Martin

Mmmm, not so black and white after all! How has it worked for others out there?

Steph

Week 4, Question 1

Hi ho, hi ho, it’s off to work I go...

Well, not just yet but that’s what your votes have told us should happen.

Matt’s pleased he can keep his weekends off and to be honest I am looking forward to keeping my hand in at work. We’re both a bit apprehensive about putting Caleb into child care. But it’s only for one day a week, and the money will make a big difference.

In fact, with the savings we’ve made over the last few weeks through getting rid of Matt’s credit card debt, his bought lunches, my gym membership, and now the prospect of extra, regular income, things are definitely looking up.

Still a way to go, but we’re now well on our way to getting things sorted.

So next on the agenda (has it ever been off it?) is the mortgage. We’re still mulling over whether to go to a broker or just talk to our bank, but whichever way we go, one thing we’re going to have to decide is whether to change the frequency of our payments.

Matt gets paid monthly, so we thought it made sense to have monthly payments. But it seems everyone these days pays their mortgage fortnightly, so maybe that’s the way we should go? And if we do pay fortnightly, should it just be half of what we pay each month? Or less? Or more?

Steph