When was the last time you looked closely at your loan, the progress you are making on paying it off and how it compares to others in the market? Analysing your mortgage could mean savings for you, as well as the opportunity to pay it off more quickly, invest in other assets or reach financial freedom sooner. Make smaller payments, more often To cut the size of your payments, make more of them. This could even see you pay off your loan faster, and therefore pay less interest overall.
For example, if your mortgage equates to $2400 a month, cut this in half and pay $1200 each fortnight. A lot of people overlook the simple maths of this. There are 12 months in a year versus 26 fortnights in a year. The maths works as follows: $2,400 monthly = 12 x $2,400 = $28,800 of total annual repayments
$1,200 fortnightly = 26 x $1,200 = $31,200 of total annual repayments
Simply put, if you pay fortnightly or weekly (it works out the same), you manage to squeeze in a few extra repayments than what you would by repaying the mortgage monthly.
For a $500,000 with minimum monthly repayments of $2,534 with a 30-year loan term, switching to fortnightly repayments of $1,267 reduces the loan term to 25 years and 7 months. You just shaved off 4 years and 5 months of the life of your loan!
Pay just a little bit extra
A minimum repayment is just that – for most loans there is no reason you can’t pay more, whether here and there or regularly.
By rounding up to a full number or contributing an extra $100 or even $10, you’ll significantly reduce your mortgage. It may also be worth considering putting all bonuses, tax returns and gifts into your mortgage.
Using the above $500,000 example, let’s say you’re fortunate enough to be able to afford to repay an extra $100 a fortnight on top of your loan repayments and increase them to $1,367 per fortnight. This reduces the loan term down to 22 years and 4 months!
Don’t decrease repayments when interest rates fall
Even if your repayments are lowered when fees and interest rates decrease, it doesn’t mean that’s all you have to pay and, by keeping your repayments at the same level when interest rates are lower, you will pay down more of the principle with each payment and make speedy progress on your loan.
If you can, use an offset account. A mortgage offset account is linked to your loan and the interest payable on the loan from month to month is calculated by deducting what is in your offset account from your current loan. For example, if your mortgage is $500,000 and your offset account has $10,000 in it, you will only pay interest on the remaining $490,000.
An offset account will save interest while still giving you access to your savings. It also means investors can preserve the tax deductibility of the mortgage.
Find a better deal
Ultimately, your mortgage needs to suit you and your circumstances, or you will wind up paying too much. If you think your current loan no longer matches your situation, speak to your mortgage broker. They will be able to find the right product for you, as well as negotiating appropriate rates on it.
Of course, it is important to make sure that your lender doesn’t charge fees for extra repayments, refinancing, or any other steps you take in an attempt to save on your loan. Your mortgage broker will be able to provide details and make sure you have a loan that lets you pay down your balance sooner.
Any questions? Let us help you. Call Chris today on 0490 075 039 or send an email to email@example.com