Take a financial load off your shoulders and save yourself money by paying your mortgage early.
Here are some tips to unburden yourself with mortgage debt faster:
1. Shift to fortnightly payments
Consider shifting to fortnightly payments if you’re currently paying monthly. You will make the equivalent of an extra month’s payment each year by paying half the monthly total every two weeks.
2. Do extra payments
Cut your loan year terms by years by doing extra payments. You can save thousands in interest if you consider putting your tax refund and bonus into your mortgage.
Majority of your payments during the first five to eight years go to paying off interest on a typical 25-year principal and interest mortgage. Any additional payments you put in during that period will reduce the interest amount you pay and shorten the term of your loan.
Verify with your lender if there’s a fee for doing extra payments. Doing extra payments will allow you a buffer in case interest rates will rise in the future. If your existing loan product does not allow you to make extra payments, then it might be time to take a second look at your mortgage and consider refinancing so your current home loan product will suit your goal which is to be debt free faster.
3. Look for a lower interest rate
Understand all the feature of your current loan and think of which you want to keep, and compare different interest rates on similar loans. Ask your current lender to match it or make a cheaper alternative if you find a better rate from others. A lot of lenders do not reward their clients for loyalty and they may not give you a discount. It is a good idea to get your home loan reviewed by a mortgage broker every now and then to make sure you are still getting the best rate or if it is time to switch lenders.
Make use of comparison websites. Just a reminder though, these websites are businesses and they earn by promoting links, they might not show you all the best options there is so a mortgage broker who has access to a panel of several lenders is still your best choice if you want to compare and get the best deal.
Of course, before switching loans, make sure the advantages outweigh any fees you’ll pay for closing your current loan and applying for another.
4. Make higher repayments
Make repayments as if you had a loan with a higher rate of interest is another means to get an advantage on your mortgage. The extra amount will help you pay off your loan sooner. If you shift to a mortgage with a lower interest rate, do the same repayments you had at the higher rate. If interest rates go down, keep repaying your loan at the higher rate. It sounds really simple but not that easy to practice since a lot of us may want to use extra cash to dine out, go shopping or go on a vacatiomn instead of making higher repayments.
5. Create an offset account
An offset account is a savings or transaction account linked to your mortgage. Your offset account balance decreases the amount you own on your loan. This lessens the interest you pay and rids you of your loan faster.
6. Don’t go for an interest-only plan
The best way to get your loan paid off faster is by paying both the principal and the interest. Most home loans are principal and interest loans, this means repayments reduce the amount borrowed and cover the interest for the term. For an interest-only term, you only pay the interest on the principal, this type is usually for a set period. The amount borrowed does not decrease for the interest-only period which would mean that your mortgage isn’t going down and that you’ll be paying more interest.
Not sure if your current loan product or lender is right for you? Get in touch with us so we can have a discussion and ensure you are well equipped to be debt free faster. Give us a call at 07 4317 4048 or email us at info@mortgagealley.com.au