Tips for reducing your mortgage…

1. Make more frequent payments.

The simplest trick is to set up mortgage repayments to occur every fortnight instead of each month.  Because there are 26 fortnights in a year, you will end up with an extra month of repayments which will help to reduce the overall life of the mortgage.

2. Pay more than you need to.

While the bank would be happy if you paid the minimum repayment amount each time and stayed with your original long-term mortgage plan, it is worth your while to pay off more than you have to so that your principal can be reduced significantly.

Before setting up a mortgage, make sure there are no fees for extra repayments and ask if there is a limit as to how much extra you are allowed to pay off your loan.  Plan to use money like work bonuses or tax rebates to help shrink your loan.

Overpaying the mortgage each fortnight does put pressure on your budget, but it is beneficial to go without some luxuries or cut your own personal expenses, knowing that it is all helping you to reach your goal quicker. Paying your mortgage off at a higher rate is a also good idea while interest rates are low so you can get used to paying a slightly higher amount incase your interest rate goes up in future.

3. Link an offset account with your mortgage.

Starting at primary school, everyone is encouraged to start and maintain a savings account.  One way to reduce your mortgage quicker is to have an offset savings account connected to your mortgage.  Keeping savings money in this account reduces the amount of your mortgage (unless you spend your savings), so you have less interest to pay.

For instance, if $10,000 of savings is placed in an offset account for a $400,000 home loan, interest only needs to be paid on $390,000.  As the amount of savings increases and the size of the mortgage is reduced over time, you can actually shorten the length of your loan by several years with careful management.

4. Talk to a mortgage adviser.

Never underestimate the benefits of having an expert look at your finances, explain different courses of action and recommend a good way for you to pay back your mortgage on your terms, not the bank’s.  A mortgage adviser can discuss fixed or floating loan options, calculate the amount you can afford in repayments, make adjustments when needed, interpret interest rate changes, and help you set an achievable goal which will set you off on the right path towards making your loan disappear within a certain time frame.

If times are tough, it is tempting to ask for a mortgage holiday, but this still doesn’t stop the interest from accruing.  It is also possible to reduce repayments so that they only cover the interest and don’t reduce the principal.  A mortgage adviser is the best person to talk to at times like these, as they can understand your financial situation and help you put strategies in place to weather the difficult times without getting yourself into more debt.
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THOUGHT OF THE WEEK:

“Always remember you are braver than you believe, stronger than you seem, and smarter than you think.”

– Christopher Robin
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