Six ways to get rid of your mortgage faster
Here are six painless steps towards taking years off your home loan, and making financial freedom possible much sooner than you had anticipated.
1. Make a budget
Eliminating your mortgage quickly requires discipline, foresight and a plan. Making a budget and sticking to it is your best chance at managing your expenses and maximising income, allowing you to increase you repayments and reach your goal faster.
Don’t let your savings stagnate; put any cash saved into a high interest savings account and earn interest while you save.
2. Make fortnightly payments
This is effective because it means that you pay back additional money over the course of the year, even though you probably won’t actually realise it. When budgeting, most people think of a month as being four weeks when in reality it’s more like 4.3. By paying fortnightly you’ll make the equivalent of 13 monthly payments per year, taking up to seven years off a 30 year loan term. It also means that your repayments will most likely be aligned with your income.
SURF2SUMMIT MORTGAGE CENTRE can compare home loans and get you the most competitive rate and the loan that is right for you.
3. Make lump sum repayments
Tax returns, work bonuses, and inheritance money are all example of lump sum windfalls that can be put directly towards you mortgage, reducing principle and diminishing interest. Check the terms and conditions of your loan; some loans won’t allow this so make sure you’ll need to specify this when choosing the loan.
After years of making additional repayments, there may come a time when you need to access those additional funds and if your loan allows for this it is called a ‘redraw’. For example, if your minimum home loan payment each month is $1000 for 12 months, but you pay $1500 each month, a loan with a redraw facility will enable you to redraw the $6000 at a later date. Be aware that this feature might incur a fee.
4. Pay more than the bank asks for
Regularly paying even slightly more than the minimum will significantly reduce the duration of your mortgage. Online mortgage calculators are a useful tool if you want to see just how much difference small increases can make to shortening the term of your home loan.
5. Setup a Mortgage Offset Account
This involves setting up a transaction account that is linked to your home loan. The money in the account is used to offset the loan, and interest is only charged on the difference. For example, if your home loan is $400,000 and you have $100,000 in savings, you only pay mortgage interest on $300,000. This can dramatically cut down on the amount of interest you pay and take years off your loan term, while also providing taxation benefits.
6. Perform a mortgage health check
A home loan needs to be serviced regularly in the same way that a car does, but it doesn’t need to be expensive or time consuming. Circumstances, interest rates and options change, and it’s always worth considering refinancing your loan, and possibly saving thousands.
Refinancing your home comes with costs so it’s important that you assess your financial situation and calculate the total cost of your loan before making any decisions for the long term.
Whether you have a mortgage, or are just about to sign, it doesn’t have to feel like you are signing your life away. With some smart financial planning there are ways to get rid of your mortgage faster. Compare home loans with Surf2Summit and assess which loan is best for you. Remember, you pay the most interest on your loan during the first few years when the principle is at its highest, so the sooner you start getting ahead, the better.
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By Hannah Collins, Yahoo!7 Moneyhound