Your mortgage is likely to be your biggest debt you will hold in your life, so it is understandable that you might like to pay this off as quickly as possible.
We have collated some handy hints and tips to help you pay off your home mortgage as quick as possible!
Investment property.
It might sound counter intuitive to buy an investment property, as this will increase your debts, but that’s because there is a difference between good debts and bad debts.
Good debts, such as a positively geared investment property, can actually help you to pay down your home loan sooner!
How does this work? Let us explain.
A good debt is debt on an asset that appreciates in value and help you to make money (such as rental income from an investment property).
In comparison, a bad debt is defined as debt on an asset that depreciates in value, such as a car loan.
A positively geared property is a property which earns more rental income than it costs you in mortgage repayments to hold the property. So once your mortgage repayment has been made, you will have some cash left over.
This means that any additional cash you earn on your positively geared investment property can actually help to service your mortgage debt on your home to help you pay it off faster.
But there are also some quick and simple ways too:
Offset accounts
If you haven’t already got one, stop reading now and call your lender! Here’s why-
Mortgage products which are 100 percent offset loans allow you to use your mortgage as your key financial product.
Having an offset account against your mortgage means any money you are holding in that offset account will go against your principal so you will be paying less interest on your mortgage.
This offset account is your every day cash account, as you can still withdraw money from it to pay for your every day expenses, but whatever amount is sitting in there is working for you to minimise your interest payments.
The offset account works really well if your salary is being paid into the account as well as any income from investment properties because you will be paying down your mortgage a whole lot faster by paying down the principal from the start. It is not unusual for dedicated savers who hold cash in their bank account to reduce their mortgage by a couple of years.
Buyers Beware- Nothing if free!
Introductory gifts and honeymoon periods are often a marketing tool used by the lenders to make it appear you are getting something for nothing, however beware that (often) nothing is actually free.
The lenders will offer you an enticing introductory low interest rate, but once the initial period is over, you will be switched to a higher variable interest rate and in the long run- you are likely to end up paying more.
Make your repayments more frequent
This is one of the simplest strategies that a lot of people don’t realise can actually make a difference to reducing the term and cost of your home loan. If you are currently making monthly repayments on your home loan, if you switch to fortnightly, this can actually reduce your interest repayments on your loan, paying down your principal amount quicker.
Here is how it works:
Instead of paying your mortgage at the end of each month, if you’re paying fortnightly you will be saving half a month of interest accumulating on your mortgage.
Also, by the end of the year, you will have paid an extra month off your mortgage!
How does this work?
Because there are 26 fortnights in a year, but only 12 months. So, paying fortnightly means you will end up paying 13 months every year. Over the life of your mortgage, this can make a big difference to paying it off sooner.
Refinance by comparing lenders- and let your current lender know about it.
A lot of people just ‘sit and forget’ on their current mortgage and just continue to pay the repayments requested by the lender. It would surprise you, just how many people have no idea about what interest rate they are paying or what is the current comparative rate- and this is on their biggest debt!
If your current loan doesn’t suit your needs, or you feel that your interest rate is too high, you can easily contact your lender to see renegotiate your loan.
Comparing lenders for the best deal is much more simpler than it sounds, and you can even request the help of a mortgage broker to do the hard yards for you.
Switching lenders to a lower rate can mean the difference of tens of thousands of dollars.
But take caution- check if your current loan has any exit fees and what the loan establishment fees will be on your new loan.
Don’t be afraid to walk away from your current lender, no matter how nice the sales person was to you when you signed the mortgage contract- remember it is a business transaction.
Don’t change your repayments.
If you have switched lenders or refinanced to a lower interest rate, continue making the same repayments. Even if interest rates drop, try to continue making the same repayments to your mortgage at the higher rate. You will not be missing the cash, and any extra payment on top of your new lower interest will be paying down your principal.
Ask for a discount.
Many lenders will offer discounts to certain professions or professional organisations. It will not hurt to ask your lender if your occupation or professional memberships qualify you to receive a discount.
Other ways to save.
Ask your lender if they can offer savings to clients in any other area because every little bit counts!
Some lenders offer discount home or car insurance, and some of the big banks offer discounted movie tickets to their clients. Every little bit will counts over the long term.
If you are looking for a buyer’s agent to assist you with purchasing a home or investment property in the Sydney, Brisbane and Newcastle regions, please get in touch with Lloyd Edge and his team at Aus Property Professionals here or give us a call on 1800 146 837!
