For most of us owning property is our biggest investment, but it doesn’t have to be the most expensive. Regardless of what we owe, by asking the question “how do I pay off my mortgage faster” is the first step on the way to a very smart money move.
Easier said than done? In fact there are numerous ways to reduce mortgage debt without putting undue strain on stretched finances. Here’s 5 that won’t dent the budget.
1. Pay down the principal early
Did you know the point at which you pay the most interest is in the first years of your loan? That’s when the principal is at its highest, so the sooner you pay down the principal the better off you’ll be. An easy way to do this might be to refinance a 30-year fixed-rate to 20 or even 15 years.
2. Make more payments
One of the simplest strategies to pay off your home loan faster and save on interest is to make extra repayments. By paying down your mortgage fortnightly, you’ll pay 13 payments a year instead of 12. Of course, if you can make even more payments throughout the year, such as a lump-sum amount, you could save thousands of dollars and reduce your loan term. And given rates are at all-time lows, round up your repayment to pay that little extra. It all helps.
3. Check out package deals
Ask for a discount on your loan. Some lenders offer professional packages to specific professional groups or members of professional organisations that can shave up to 0.5 per cent or more off your mortgage rate. If you don’t ask, you’ll never know whether you’re eligible. And there’s often further savings tied to a package such as discounted home insurance, fee-free credit card or transaction accounts. Also look into the benefits of all-in-one loans or 100 percent offset loans, which allow you to pay all your income into and repay all your debt from the one account.
4. Consolidate all debts
If you have more than one credit card or loan, pay off the one with the highest interest rate first, or tackle the smallest debt first. Better still, most lenders allow you to refinance all your debts under your home loan. If you have a mortgage and equity in your home, incorporating your personal debt onto your mortgage and increasing repayments could save a significant amount of interest. Consider what you’ll save by transferring credit card or personal loan debts with interest rates of around 15 to 20 percent to your home loan where repayments are under 5 per cent!
5. Split your loan, or pay more off your fixed rate
It seems we don’t have to worry too much about an interest rate rise. However if you want to stick to a budget, fixing your loan is the way forward. But don’t fix the lot. You can hedge your bets by taking out a a split loan, which allows you to take part of your loan as fixed and part as variable. This way you can still make those extra repayments or lump sum amounts on the variable component of your “combination” loan. Already locked your loan down to a fixed rate? Check with your provider whether you can make extra repayments without penalty. Most lenders will allow you to pay an extra $10,000 a year off your fixed loan without incurring extra fees.
There are many more ways to reduce mortgage debt and save on tax at the same time. Allied Investment Group can help you turn your mortgage into a key financial product to suit your personal financial circumstances. Call 1300 886 149 to put your “get out of mortgage debt faster”.