Paying off a mortgage can seem relentless – every payment counts of course, but it can seem to be taking forever to make a dent. Here are some simple ways you can increase the amount you pay off and own your home sooner.
Reducing the principle on your mortgage as quickly as you can means paying less interest, so your future payments are going even further towards reducing that principle.
To find the ideal balance between the extra repayments you can afford to make and the time this will shave off your mortgage term, use a mortgage calculator. To save you looking, here’s one we’ve prepared earlier for you – click here to open.
For example, on a $300,000 loan at 4.00 per cent per annum interest, a monthly repayment of $1,432 will see a total term of 30 years and a total pay back cost of just over $515,000. Topping up that repayment slighty to a neat $1,600 per month will bring the loan term down by 5.5 years save you over $44,000 in interest. It’s amazing how the compound effect works for every extra dollar you can contribute. The benefits just get greater and greater. For example, if you can stretch the repayment to $2,000 per month, this saves a massive 12.5 years off the term and over $99,000 in interest!
So, here are five simple ways to increase those mortgage repayments.
1. Ignore the bank
Well, sort of. Don’t pay any attention to the amount that you are told is the minimum repayment, as long as you pay more. Work out the most you can afford to pay, think of this as your minimum repayment, budget for it and stick to it.
2. Treat yourself
Think of every step you take towards reaching your goal of owning your property outright as a way of treating yourself. Sure, an expensive bottle of wine is nice, but doesn’t taking a year off your loan taste pretty sweet, too? Every single increase to your income, no matter how small, should be channelled into the debts that are incurring the highest interest. If this is your mortgage, send it there. Do the same with your tax returns, any bonuses at work and even cash gifts.
3. Track your spending
Download an app to track what you are spending your money on, and trim where necessary, channelling the savings into your mortgage payments. Think of all those little things you don’t really notice yourself pulling out your wallet for. In one week, that extra coffee on Monday morning, a sandwich from the cafe instead of one you have made yourself, that round of shots you probably shouldn’t have shouted on Friday night and getting your nails done on Saturday add up to $150. Over a month, that’s $600. Remember, increasing a monthly repayment from $1,432 to $1,600 could trim more than 5 years off the term of a $300,000 loan. Now how much do you really want that coffee?
4. Eyes on the prize
Watch the forecast term on your mortgage – seeing it go down will motivate you to work even harder.
5. Talk to an expert
Talking to a mortgage adviser about refinancing options could reveal a way to pay down your debt sooner even without increasing repayments. A mortgage adviser will be able to look into whether you may get a better interest rate or lower fees with another lender, or even with your own, and will be able to help minimise any refinancing costs. This is especially important each time your goals or your financial circumstances change. If you are earning more than when you took out your loan, you have paid off a personal loan or a credit card since that time, or your property’s value has risen, your mortgage adviser may be able to negotiate a far better deal than the one you are on.
For example, if your mortgage adviser negotiated your interest rate down from say 4.50 to 3.70 per cent on a $300,000 loan, your interest costs reduce and will allow you to pay an extra $200 per month towards reducing the principal. Throw that number into the calculator!
So if you’d like an obligation free assessment to make sure you’re getting a competitive deal on your mortgage, I would love to hear from you. Oh, and my service is completely free.
Cairns Mortgage Broker – Jason Thomson is a Mortgage Adviser and Finance Broker based in Cairns with clients all around Australia. Client reviews featured on his website prove that Jason is a trusted industry professional, facilitating great outcomes for his clients. Using his wealth of experience in financial services, he thrives on delivering superior service. Jason is very approachable and is always looking for new clients to help in the often confusing world of finance and property. Offering a no fee service, you’ve got nothing to lose by having an obligation free chat with Jason today.