Owning your own home is an exciting time of your life. With all the possibilities and luxuries, you may find yourself forgetting one of the most important parts of owning your own home. You will have to take out a mortgage, unless you can afford to pay for it in cold hard cash (lucky you!). But this can be a big debt to pay for years, which could put a huge dent on your finances. If you want to get rid of your mortgage fast, and reap the rewards of investment perhaps, you will want to pay it back as soon as you can after you first take the loan out
Check out these 10 tips on how you can eliminate your mortgage as fast as you can.
Tip #1 – Plan your loan carefully.
Before you take out a mortgage, you need to plan for it carefully. Set a budget, understand interest rates, research the lenders, know and decide how much you can and are willing to afford for the monthly payments. Our friends at uno Home Loans can help you with this process. They provide an obligation free comparison of both the major banks as well as smaller lenders to help you find a deal that will work for you now and into the future.
Tip #2 – Opt for a shorter term.
Most mortgages have a 30-year normal default term. Since interest rates are computed based on this, opting for a shorter term could mean paying less. How so? Mortgage payments are computed using two factors, principal and interest each month. Therefore by paying a mortgage in a shorter period, means less interest is payable.
Tip #3 – Have your property taxes reassessed.
If you have already bought a house and suspect that it was valued incorrectly, you could have it reassessed which may affect your ability to re-invest in more property, and claiming depreciation at tax time, your accountant will be able to help with advice on tax if your house is an investment property. Don’t forget that depreciation rates have been severely reduced on existing homes and apartments but still result in good returns for investors building new homes.
Tip #4 – Pay weekly or fortnightly.
If you can afford it, pay as frequently as possible. This will save you thousands of dollars on your mortgage and speed up the payoff date. There are 52 weeks in a year, which means 26 bimonthly periods. So if you opt to pay every fortnightly, which is equal to 13 monthly payments, you will be making one extra payment every year. If you add that up, you could pay off your 30-year mortgage in about 26 years or 4 years earlier than the original payoff date, and far earlier is you have opted for a shorter term loan.
Tip #5 – Go for cheaper homeowners insurance.
If you pay less for your home insurance, you will, naturally, have extra money to pay for your mortgage. Shop around for insurance companies that offer one payment for car and home policies, also known as “bundling”. According to some research, bundling your home and auto insurance lets you save between 15 and 20 percent. That way interest rates are consolidated, thus letting you pay less for your home loan with those extra repayments.
Tip #6 – Take advantage of pay raises, bonuses, and tax refunds.
Haven’t really thought about what to spend your yearly bonus, tax refund, annual salary raise, or monetary gifts on? You can put a large portion of the money toward your mortgage, which can reduce your principal and interest significantly.
Tip #7 – Use a mortgage offset account.
A mortgage offset account is a savings account linked to your housing loan. Whatever balance you have in said account will be offset against the balance of your mortgage. In other words, you pay less in interest because the lender doesn’t charge you interest on your mortgage’s balance. For example, if you have an offset account with a balance of $200,000 and it is linked to a mortgage with a balance of $300,000, you would only have to pay the interest on $100,000 of the remaining amount.
Check with your lender first because some lenders may specify that the offset account can only be linked to a mortgage with a fixed term loan, or not even provide an offset account.
Tip #8 – Pay the same amount on your mortgage payments even if the interest rates drop.
It might be tempting to pay less for your monthly mortgage payments when interest rates fall. But instead of spending the money you are going to save elsewhere, it’s best to keep paying the same amount, if not higher, to pay off your debt faster, every extra payment will get you closer to celebrate owning your entire home!
Tip #9 – Round up those amounts.
Don’t have a lot of extra cash to make bigger or fortnightly payments? You can round up the amount to add a bit of money into your repayment. If your monthly payment is $1,520, for example, you can round it up to $1,600 or better yet, $2,000. That way the extra few hundreds each year can pay down some of your principal and interest.
Tip #10 – Consider a hybrid mortgage.
Also known as 50/50 mortgage, this type of home loan is equal parts fixed-rate and variable-rate loan. This means that you get the security of fixed interests and flexibility of a variable rate. This could reduce the level of risk on your mortgage, and since interest rates do fluctuate, you may find comfort in a little flexibility.
Motivate yourself into paying off your mortgage as early as possible by setting a payoff date. It could be your retirement date, 40th wedding anniversary or 50th birthday. Then, use a mortgage payoff calculator to have a clear view of how much you will need to pay each month.