Shave Years Off Your Mortgage

Would you like to shave 10 years off your mortgage? If you said “Yes”, here are a few tips for you…

It’s not rocket science, it’s simply a matter of making more repayments more often and making sure you’ve got the best mortgage for your situation. Of the millions of homeowners, only a few get out from under mortgage payments years, sometimes decades, before their neighbours. How? They make an effort to pay off their mortgage early.

The average home loan is now about $300,000, but living mortgage-free is not a pipe dream. You may only need to find an extra $200-$500 every month so that you can exceed your mortgage payments. While many think they can’t afford that, you’d be amazed at how much money you can save on a monthly basis.

1. KNOW YOUR BUDGET

Many people don’t know where their money goes. It is important to know your incomings and outgoings, so you can identify where savings can be made. You may be shocked to learn just how much you spend monthly on eating out, takeaway or coffees. Even an extra $20 paid per fortnight can make a significant difference to the mortgage balance.

Spend any cash windfalls, such as a salary bonus wisely. Depositing an extra $2000 as a lump sum into an average $300,000 mortgage can potentially shave about eight months off a 30-year-term, saving a mortgage holder almost $12,000.

2. CALCULATE YOUR REPAYMENTS

Mortgage payment calculators (free on the web) will show you exactly how much money you can save by increasing your repayments. For example, monthly repayments on a $300,000 mortgage over a 25-year term at 7.25 per cent are about $2168. But increase your payment by $575 and you could pay the loan off 10 years earlier, saving $158,277 in interest.

Finding the extra money might not be easy, but go back to your budget. You’ll be surprised how you can reduce incidental spending if you scrutinise your household budget. Do you really need the new shoes, or do you just want them?

3. INCREASE PAYMENT FREQUENCY

Paying fortnightly instead of monthly can shave years off your loan. On a $300,000 mortgage, a person can cut four years and six months off the life of the loan and save $82,823 in interest simply by swapping to fortnightly repayments. Loan are reduced faster as there are 26 fortnightly repayments each year, instead of 12 monthly repayments.

4. LUMP SUM REPAYMENTS

Pay your loan faster by making lump sum repayments whenever you can. Tax returns, work bonuses or inheritance money can all be pumped straight into the mortgage to help reduce interest. While it’s tempting to spend bonus, try to stay focused on the main prize and be debt free sooner. One note, make sure your loan allows you to make additional repayments without penalty. Some basic loans have restrictions on extra repayments or charge a fee for the privilege.

5. KEEP YOUR SAVINGS IN AN OFFSET ACCOUNT

It may be better to save in a mortgage offset account rather than to park your money in a high interest “savings” account. Money in an offset account will be working to reduce interest and pay the loan off faster. Mortgage offset accounts have the added advantage that your cash can be easily accessed if necessary.

6. CONSOLIDATE YOUR DEBTS

By consolidating your debts, you can pay less interest because home loan interest rates are often much lower than personal loan, credit card and store account rates. This can reduce your monthly commitments and free up extra cash to make additional loan repayments.

7. SWITCH CAREFULLY

Although home loan exit fees have been abolished on all mortgages taken out from July 1, 2011,people with loans taken out before this date need to carefully consider the costs associated with moving a mortgage. There can be numerous exit and set-up fees and charges still applicable. Before switching, check whether these costs will outweigh the potential savings from having a lower interest rate. How long it will take to break even?

Switch tactics can apply to other areas too. Make sure that your credit cards, gas, electricity, phone and internet providers are the best deals you can get. What you save on these costs can go to increasing your mortgage repayment.

8. LOW MORTGAGE RATE AND INTEREST RATE

Find the best interest rate you can. Most home loan mortgage rates should be offered at between 7 and 8 per cent interest. If you are higher, refinance now.

9. PLAN AHEAD

Factor in interest rate rises and, if possible, start making contributions at the higher rate. It will ease the stress when repayments do increase and will also put you ahead of the scheduled loan term. On the hand, if rates decrease, keep your repayments at the higher amount to enable you to pay off your loan sooner.

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About davidcutlerproperty
David Cutler is a highly successful sales consultant at Gary Peer Caulfield. David provides clients with six star service customised to their individual needs. From formulating marketing strategies, through to completing contracts, he is diligent, dedicated and highly motivated to achieve the best results. His growing base of happy clients is testament to his ability to develop strong relationships based on mutual respect and integrity. When he is not busy selling property David spends quality time with his young family. And when time permits he also enjoys on and off road cycling and is an avid fan of rugby union’s Springboks.

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