Owning a home today is one thing many people strive for but aren’t aware of the burden a mortgage can become. It is one of those payments that is necessary but you dread making it month after month for years on end.
When homeowners think about reducing their debt they typically do not include a mortgage as part of their bad debt. We are more concerned with the credit cards and personal loans that tend to acquire over a lifetime.
Though seeking a debt consolidation will greatly reduce your debt and the interest you pay by combining your additional debts within your home loan, focusing on reducing your home loan can also save you thousands.
In addition to the tens of thousands you could save by paying your mortgage smart, you can also get ahead in payments which will give you peace of mind. For example, if you are ahead in payments and an emergency occurs or interest rates increase, you have secured a buffer to help you adjust to the change.
Here are a few tips in how to get ahead in paying down your mortgage:
Increase the Payment Amount
Making even the slightest change in your monthly payment can save you hundreds or even thousands in interest payments. On a standard $300,000 home loan with a 7% interest rate, if you increase your monthly payments by $100 a month, you would end up saving over $78,000 in interest. So instead of buying that coffee every morning, put that towards your home loan and you will have enough for a great holiday or a down payment on a second home! In addition to the large sum of money you will save, you will also pay your mortgage off 4 years quicker!
Many lenders and brokers can supply you with different options and interest rates. If you shop around and find a good deal that could save you on monthly payments or interest rates, take the deal back to your provider and see if they can match it. Otherwise, switching lenders could be profitable for you.
Increase Payment Occurrence
Mortgages are typically billed monthly so that is how we pay them. A little known fact though is if you pay fortnightly, you will end up paying more over a year than if you pay monthly. Setting up your bank account to automatically pay your loan every fortnight will convert to 13 months worth of payments over a year. This extra month of payments every year will decrease the amount of interest charged by hundreds of dollars.
Map Your Plan
To make sure your efforts are paying off, it is important to track how your payments are decreasing your principal balance. In addition to keeping track of your progress, take advantage of the online calculators available that will show you how much you will save by making the smallest changes. Many of these useful calculators can be found on financial websites. Every few months go back and reassess how you are progressing with the repayments and see if you can make further changes.
Andrew is a financial advisor specialising in business loans and low doc loans.