Anyone who has ever had to pay off a mortgage will tell you they would love to pay it off before the term, but most people will continue to chip away at their loan on autopilot. A proactive strategy can cut your loan term from 30 years to less than half in some cases. Here are 10 ways to own your home sooner.
1. Pay your mortgage as you receive your income.
E.g. fortnightly or even weekly. Doing this cuts down on interest payable and will save you a lot of money over the course of your home loan. If you are super focused, pay your mortgage weekly which will reduce interest further again.
2. Set up an automated recurring payment for your mortgage payments.
This is usually free of charge and means that you are always on-time and can’t over-spend on other things leaving you short to meet your payment obligations.
3. Park the large lump sum into your mortgage account
eg. if you get $2000 back from your tax return, receive dividends from other investments or get bonus payments from your job, make a large payment towards your mortgage. These large lump sums can cut years worth of interest off the loan.
4. List your regular expenses and you will find 1 or 2 items that you can do without.
This will make a big difference to either your cash flow, freeing up disposable income to park in your mortgage account.
5. Make a habit of going only to the ATM’s.
The charges (usually $1 - $2.50 per transaction or account enquiry) can easily add up to a nice little amount that can either remain in your pocket rather than a banks or ATM provider and go towards your loan. (see #5)
6. Increase your repayments while rates are coming down.
You can cut up to 2 years off the life-span of your loan by paying an extra $20 to $50 on each payment. This may just mean cutting out an extra cup of coffee here or there or once a week taking lunch to work rather than buying it occasionally.
7. Have your wages paid directly into your home-loan account.
You will need a loan with re-draw or line-of-credit type of facility so you can have unlimited access the funds for living expenses etc. This will greatly reduce the interest that you pay as the interest is debited at the end of the month and usually calculated daily.
8. Offset your loans with a savings account.
This is called mortgage offsetting, where as the amount in your savings account (earning interest) is calculated/subtracted against the actual interest charge against the loan amount, then the interest is calculated only on the balance. For example, if your loan is $400 000 and you have $100 000 in savings, this equate to $300 000 on which you actually pay interest. This of course greatly reduces the amount of interest you effectively pay and will save you years on your home loan.
9. Perform a mortgage health check.
Sometimes you just have to admit your loan might not be the best for you anymore. Your loan may have been superseded as a product. Interest rates may have changed drastically, leaving you better off with a variable rate than a fixed one. In that case, look at re-financing whether it is with your existing lender or a different one. Go to a home loan lender or broker to make sure you do get the best deal. Don’t just go to one provider as usually they will only offer you their products. To get a full scope of available options talk to a specialist who has access to various funders and lenders. They are in a competitive market and will try to gain your custom – let them earn it.
10. When re-financing, consider pooling or consolidating any other loans.
Eg. (car or personal) and credit cards (of a much higher interest rate) into the one loan as the savings often will outweigh the slightly higher loan amount.