No one wants to make mortgage repayments for longer than they need to, but how can you pay off your mortgage quicker without compromising your lifestyle?
There are actually quite a few methods that you can use to repay your mortgage quickly and still lead a comfortable lifestyle in the process. Here are a few insightful tips.
Make Larger Repayments
It’s remarkable the difference that a little extra can make to the term of a mortgage. By paying a little extra every week, fortnight or month, you’ll easily shave years off the repayment term.
For instance, on a $300,000 mortgage with 7 percent interest over 30 years, you’ll reduce the loan term by 4 years just by paying an extra $100 per month. Make that 7 years if you increase it to $200.
Make Extra Repayments
Most borrowers find that there are many opportunities to make extra repayments – when they look for them. Putting your tax return towards your mortgage repayments is a great opportunity to shave a little extra off your loan every year, as is putting whatever remains in your savings account into your loan the day before payday. This is a handy trick that many people overlook. It may not be much, but if you average just $20 a week that will add up to $1,000 over the year.
Increase Repayment Frequency
If you currently make monthly repayments, look at making fortnightly or even weekly repayments if you can. Those who get paid a monthly salary mightn’t be able to do so comfortably, but as most Australians get paid a weekly salary or wage, most of us are able to make weekly repayments if we like.
Basically, if you make the switch from monthly repayments to weekly repayments you’ll be making the equivalent of 13 months’ worth of home loan repayments each year. This can cut around 6 years from a 30 year loan depending on the interest rate.
Switch Home Loans
This is an option to consider, but beware. There are often a number of hidden costs involved when switching home loans – lenders mortgage insurance, loan exit fees, new application fees, etc. – so take these into account before you commit yourself.
Nevertheless, do your research and then get in touch with your current lender. Tell them that you’re considering switching to another mortgage provider and ask them if they can do you a better deal. They may offer you a lower interest rate, or they may suggest switching to an alternative loan that they offer which incurs less interest.
Every Australian homeowner who has taken out a mortgage to buy a home of their own will be able to repay their loan quicker using one or more of these methods. Just paying an extra $10 per month will knock 4 repayments off the average 25 year home loan, so it suffices to say that every little bit extra really does help.