The amount of money you initially borrow from the bank is called the principal amount and your bank charges you interest on the outstanding principal each month. This means that focusing on paying down your principal amount puts a bigger dent in paying off your mortgage a whole lot sooner.
For instance, if you have a loan of $300,000 at 4.5 per cent interest and you pay $1,520.00 a month, the loan will cost you more than $548,000 over 30 years. If you can find a way to increase your monthly payments by just $300 you would save 8 and half years and almost $80,000. Increase your repayments by an additional $200 more and you'll see the mortgage gone in less than 19 years.
The problem, of course, is that paying off your mortgage can seem to take forever and finding the extra dollars to make higher repayments can be a challenge but every little bit adds up. Your goal is to find ways to afford extra towards your loan repayments and shorten your mortgage term.
Here's 5 ways to tame your mortgage monster and pay your home loan faster.
1. Redefine "minimum repayments"
As much as you possibly can, you must make more than the minimum payment. Calculate the most you can afford to pay, call it your ‘minimum,’ and budget accordingly. If your loan type allows it, put your savings into your mortgage and redraw it if you need it.
Cutting a year off your loan is a sweet deal. Think of extra repayments as a treat and enjoy your progress. With that in mind, look to channel money saved toward whatever debts carry the greatest interest; car loans, credit cards, mortgage. If that’s your mortgage, throw tax returns, bonuses, raises, and even cash gifts at it and watch the principle shrink. If you have consumer debt like credit credit cards go after these first. They're smaller and attract higher rates of interest. Ones these are out of the way, dont take a holiday, put the repayment you were making on these into your mortgage and watch that principal shrink.
3. Cut out the coffee
Not everything you spend money on is good for you or your purse. Think about the little ‘extras’ that you could cut back on. Give up one or two coffees from the cafe; less lunches at the restaurant; think twice about the scatch lotto tickets. Depending on your lifestyle and the changes you're willing to make and cutting back a little here and there could give you $150.00 to $300.00 a month. Put this into you mortgage and you'll save a heap in interest over the year.
4. Focus on the finish line
Keep an eye on your mortgage balance and celebrate the reductions you're making. As it goes down, you’ll be encouraged keep focusing on paying off your mortgage faster.
5. Consider refinancing
Discuss refinancing options with a mortgage expert, you could find yourself able to pay down your mortgage sooner without increasing your repayments. Refinancing could improve your interest rates and lower your fees. In some cases there are even options available to help minimise any associated costs.
Refinancing is particularly valuable when your goals or circumstances have changed. If your income has increased, you have paid off a debt, or your property has increased in value, you may be able to use your equity to leverage a much better deal.
Contact EquityLend to help guide you through the loan process. We can discuss the options available to best suit you circumstances and help you tame your Mortgage Monster.