Regardless of your current income and financial position one thing is certain – that is the need to own your home mortgage free prior to retirement.
A traditional mortgage is of a principal and interest nature. That is, monthly repayment cover the interest being charged and the balance actually reduces the level of the amount borrowed (principal).
A fact often overlooked by many borrowers is that the vast majority of your monthly repayments is actually servicing the interest component and very little is reducing the amount outstanding. So how can we pay our mortgage off sooner?
We believe that borrowers can make small adjustments to both lifestyle and the way a family uses money in order to substantially reduce the number of years required to pay off a mortgage and save thousands of dollars in interest.
Reducing your mortgage is soon as possible is simple but not easy. It takes a commitment and whilst our lives change from time to time, even short term commitments can save thousands in interest and assist in paying your mortgage off sooner.
Five tips to paying off your mortgage sooner:
- Pay Your Mortgage Fortnightly or Weekly – making weekly or fortnightly repayments as opposed to monthly repayments can save you substantial amounts in interest. Making more regular payments lowers the principal which in turn lowers the interest amount. Over loans of 25 years this can save thousands of dollars in interest.
- Pay More Than Your Agreed Repayment – As the cost of living has risen this can be easier said than done, however if you can spare an extra few dollars per week (even as little as $5) it is well worth the while in the long term. Any “extra” is paid directly off the principal, the knock-on effect on your interest payments add up over long periods.
- If You Come Into Extra Cash Pay It Off The Mortgage – Whilst it is great to have thousands nested away in a savings account the best rate of interest that most people can ever receive is the rate they pay on their mortgage. One off payments from your mortgage can have your home paid off years sooner. If you receive a tax refund or come into a lump sum of money (which happens to many people from time to time) you are wise to pay it from your mortgage. Again this payment lowers your mortgage immediately and will affect the amount of interest you pay in the long term.
- Use Your Money Wisely – Not only is it important to respect your money but use your cash flows wisely. If you have credit cards with 55day interest free periods then utilise the 55 days (be sure not to go over your interest free periods). Rather than having a nil balance on your credit card statement on day 30, you could have paid that money from your mortgage, lowering the interest and shortening the term of your mortgage.
- Investment Property Is An Option – Over a period of time you will have accumulated enough equity in your home to allow you to purchase an investment property. An investment property, purchased and financed correctly, can wipe years from your mortgage. You now have two properties rising in value, building equity. In time you can sell the investment property and use that equity to make a significant dent in your mortgage.