2015-03-19-1426782674-7802080-smashed002 copyIf you’re self-employed it can often feel like your income is as unpredictable as the Warriors on game day. This can make managing mortgages very stressful.

We regularly work with self-employed clients, offering advice on structuring their home loans to minimise stress (and interest payments). If you’re self-employed, here’s our two cents worth on managing your mortgage.

First up, if you’re self-employed and you’ve got your loan sorted, good on ya for securing it in the first place!

People often say using revolving credit is a great way to manage that fluid income. It can definitely help smooth out lumps in cash flow, and can also be a place to store your tax and GST money, while knocking back the interest on your mortgage. But, most people signing up for revolving credit mortgages don’t have a plan to manage it. And when they see ‘funds available’ they spend them… Problemo. Before long the set up breaks down and the benefits they hoped to get dry up.

My advice: Don’t try to use your mortgage as a money management tool (whether you’re self-employed or not).That is, UNLESS you’ve got the guts to write a spending plan and the discipline to stick to it. Since most of us have neither of those things, a stock-standard 25-year mortgage is the way to go – forget revolving credit.

What works better for most self-employed people is to have 2-3 different financial buckets (or accounts). Say Cheque, Savings, Tax, and Mortgage (or whatever labels float your boat), so you can actually see what’s what and where your funds are sitting.

Revolving credit works best by pouring all these ‘buckets’ into one, so those extra funds are chipping away at the mortgage. But you can lose track (very easily) unless you’ve got a budget.

Another idea is an offset account. For some people it can work better because the positive account balances (savings and cheque) are offset against the negative account balances (mortgage), with interest charged on the net balance. Instead of having separate everyday and mortgage accounts, the money sitting in your everyday spending, tax, and savings accounts nibbles away at the interest on your mortgage. The benefit is that it’s much easier to see where your money is sitting, so you don’t blitz through that carefully saved tax money without batting an eyelid. There’s usually a small annual fee for this service, but it can work out pretty well if you don’t have a written spending plan.

Of course, the grand idea is to get that mortgage paid off as quick as possible and stop working altogether… right?! Well, until that unicorn skips under the double rainbow to your place, we hope our advice can help you find the best way to manage your mortgage alongside your work.

Want to chat about a better strategy and structure for you? Give us a call.    

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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