Your home loan is probably the biggest debt that you will have in life and with the life of the term exceeding 25 years, it can feel like you may never pay off your mortgage in full. However, there are some tips to help you reduce your mortgage costs faster and live debt-free sooner.
1. Make extra repayments.
If you have a variable interest rate loan, chances are that the interest on it has dropped significantly compared to several years ago. This means you could lower your repayments, as the interest rate will be lower, however a good option is to keep the repayments the same, which will help you pay off your mortgage faster.
It’s a clever strategy that will help you pay off more of your loan without actually increasing the amount that you give the lender each month. This is possible because a larger part of your repayments is now going towards the principal (the amount you owe the lender of the purchase price of the home), instead of paying off more interest.
However, before doing so, we advise speaking to your Launch Finance Mortgage Broker to find out whether your lender will allow you to make the extra repayments. Some lenders can charge fees if you choose to make extra repayments above the threshold that the lender set out in your home loan agreement.
2. Make Fortnightly Repayments.
Are you paying your mortgage repayments monthly? Splitting it into fortnightly payments can have a huge impact in lowering your mortgage without increasing how much you’re paying the lender. The reason behind this is simple. There are 12 months in a year, and there are 26 fortnights in the same period.
So, if you’re currently paying your lender $2,000 per month, this gives you a total payment of $24,000 at the end of the year, however when you split it by paying $1,000 per fortnight, you’ll be able to pay $26,000 by the end of the year. Again, you’ve reduced your mortgage significantly without massively affecting your level of repayments.
The other reason paying weekly or fortnightly is better is due to having more credits hitting the home loan account each month. The interest is calculated on the daily balance and charged at the end of the month. Thus by paying weekly or fortnightly you are reducing your balance more often through the month and interest is calculated on the lower balance.
3. Refinance your Loan.
There are instances where making higher or the same level of repayments simply doesn’t cut it anymore as you may be paying very high interest rates in a time where interest rates are at record lows.
This is where loan refinancing comes in. You can do this when you’re looking for a loan product that is better suited to your current situation than in the past. For example, if you find that the fixed rate loan you took out years ago doesn’t serve you well anymore, you can look at moving your home loan to a different lender who offers a more competitive loan or to another service that your current lender provides.
It is important to consider, however, that some lenders charge fees to switch your home loan, so it is best to seek advice from your Mortgage Broker to see if refinancing is worth the charges as you potentially could be saving thousands in the long term.
One of the key components that will help you repay your mortgage faster is to take out a home loan that suits that requirement in the beginning, or moving to a more suitable home loan. Your Launch Finance Mortgage Broker will ensure they understand your financial situation fully to advise you of the right package for you and make paying off your mortgage faster simple and easy.
Written by Joe Del Borrello.