Your mortgage is possibly the largest debt you’ll ever have. So it makes sense to pay it off fast. A life mortgage free means greater cash flow and more money to invest for retirement. But, how can you reduce that mortgage faster?
Let’s look at 8-ways now.
1. Pay your first mortgage payment on the day of settlement – Most lenders will request your first mortgage payment be made a month after settlement. But, you can request that this occur on the day of settlement. This means that you’ll begin reducing your home loan principal immediately, which, in turn, will save you in interest.
2. Sync your home loan payments with your pay-day – If you get paid weekly or fortnightly, then make sure a mortgage repayment is made the day after your pay clears. This way you’ll reduce your principal faster and incur less interest.
3. Use an offset account to reduce your home loan interest – Many home loans allow you to take advantage of an offset account. This account is linked to your home loan, and any funds held in this account reduce the amount of interest that you pay on your home loan monthly. For instance, $10,000 held in an offset account on a home loan of $250,000 at 5 percent interest will be reduced by $250 a year, which is equivalent to a 0.2 percent drop in your interest rate.
4. Pay weekly or fortnightly, rather than monthly – Making payments more frequently than monthly means that you’ll make an extra monthly payment per year. This is because while there are 12 months in a year, these months do not consist of 4-weeks, some months have 5-weeks. But your lender still views this as a month, so they’ll deduct only 12 payments for your home loan per year. Whereas if you pay fortnightly or weekly, you are making 26 or 52 payments a year. This equates to an extra monthly payment.
5. Make extra payments – Whenever you have more money, pay this straight off your mortgage. If you have a redraw facility linked to your home loan then any additional money you pay into your mortgage is available, this then gives you peace-of-mind should any unexpected bills arise.
6. Set yourself a budget – Watch what you spend your money on and try to cut down on luxuries. Forgoing that coffee on the way to work and making your lunch instead of buying it can save you around $130 a week. The extra money you then save can be paid off your mortgage. Overtime this will then reduce your principle and decrease the amount of interest that you pay.
Do you want to reduce your mortgage faster? If so, then contact eChoice and find the right home loan for YOU today.