With interest rates the lowest they’ve ever been, it makes sense to pay off your mortgage now, rather than later. Why? Well, you’ll not only potentially save yourself thousands in interest repayments, but you’ll also free-up your money so you can look at investing for the future. So, how can you make your mortgage disappear in record time without busting the bank? Here are some smart tips to get you under way.
Increase Repayment Frequency
If you’re currently paying off your mortgage monthly, then consider switching to fortnightly or weekly. By paying your home loan more often, you’ll make an extra monthly payment as there are thirteen four-week months in a year, not twelve. This strategy reduces your interest, which gets calculated daily on the principal.
Select a Home Loan That Works for You
There are literally hundreds of home loan products on the market, so the key is finding one that matches your lifestyle and goals. Thus, you’ll need to look at far more than the interest rate when searching for the right home loan. Also, consider features such as an offset account and redraw facility and how these could save you more over the lifetime of your loan.
Consider Changing Your Loan Type
If you have an interest only loan that attracts a higher interest rate, then consider changing to an interest and principal loan with a lower rate. You may also find a split loan, with a portion fixed and the other portion variable, an easier way to keep your interest down, and pay off your home loan faster.
Round Up Your Repayments
This tip is crazy: let’s say your mortgage repayment is $1159 and you can stretch to $1200 per month. So, you decide to pay the extra. Do you know that this extra $41 per month will shave $11,664.52 off the interest you’ll pay on your loan and reduce your term by 1-year 3-months? Paying a little more, a lot, can make a big difference.
Link an Offset Account to Your Mortgage
An offset account makes your money work twice as hard for you. By placing your pay into a 100% offset that’s linked to your mortgage, then using only what you need, your money will reduce the interest that you pay.
So, how does it work? Well, let’s say you have a $250,000 mortgage and you’ve got $15,000 in your offset account, then you’ll only pay interest on $235,000. Therefore, the more money you have in your offset account (linked to your mortgage) the less interest you’ll pay.
Some people also choose to use a credit card to pay for their expenses and they leave all their salary in their offset account until their credit card payment is due. This method means that their salary reduces their mortgage interest over the duration that the money is in the account.
Focus Your Energy On Your Home Loan
We all spend money on unneeded items – coffee, lunches, and a night out with friends once a week. So, by forgoing these luxuries and concentrating your efforts on your mortgage, you’ll be surprised at how much extra you can pay off your loan. For instance, let’s say you buy a $10 lunch and a $5 coffee daily. In a week, this means that you’re spending $75 a week on items you don’t need. So, if you spend an extra $20 when shopping on lunch items and make your lunch, and drink coffee at work, then you’ll be able to pay an extra $55 a week off your mortgage or a whopping $238 a month or $2,860 a year. If you have a $250,000 mortgage this equates to an interest saving of $34,544.87 with 5-years and 9-months shaved off your mortgage.
Review Your Mortgage Annually
The best way to keep on top of your mortgage and to save more is to review your mortgage frequently. Consequently, this means checking your interest rate and then comparing this to other mortgages on the market. If you can find a home loan that offers you an interest rate that is 1% or more, lower than your existing rate and it gives you the same, or better features, then it may be time to consider switching lenders. If you’re unsure about how to compare mortgages, then visit a broker. They can compare home loans for you, and their services are typically free.
Overall, being vigilant and working out a plan to pay off your mortgage faster could save your more in the long run. Plus, it also means that while you are making sacrifices now, later you’ll be able to spoil yourself more because you’ll have more residual cash. This strategy is ideal if you’re looking to save for retirement or to set yourself up to buy investment properties in the future. The key is planning and then to stick to it regardless of whatever else may be happening in your life. Chiselling away at your mortgage allows you to be one step ahead financially, and it also gives you an excellent credit rating and history.
Don’t Be Afraid to Refinance
If you don’t feel that your current lender is looking after you and that you can get a better deal elsewhere, then start looking at your options. Once you or a mortgage broker has researched the market and you’ve found home loans that are more competitive, then arrange an appointment to see your existing lender. If they cannot match these deals, then look at securing one of the other loans that meet your purposes better.
Talk to a Mortgage Broker
Many people don’t know what a mortgage broker can do for them or what they charge. The good news is a mortgage broker’s service is typically free (they receive a lender commission after loan approval) and they can help you compare the market and find products that match your needs and lifestyle. Plus, a mortgage broker is there with you from the start to the finish of your home loan. Therefore, they negotiate with the lender on your behalf, answer any questions, and they help you to understand the lending process, including settlement.
To help understand your situation better and discuss your mortgage needs, talk to Home Loan Depot today here, call us in 1300 967 120 or email email@example.com. We can help you find the loan that fits your financial and family needs.