10 ways to reduce mortgage repayments
While most mortgages have a thirty-year term, there’s no reason you can’t pay them off and own your home or investment property quicker. Here are our tips on how to reduce mortgage repayments faster.
1. Start with a larger deposit
You don’t always need a big deposit to take out a home loan, but saving a larger deposit can mean smaller interest repayments, no mortgage insurance costs and potentially easier home loan approval.
2. Pay the first home loan instalment as soon as you settle
By making a repayment on the first day, you can reduce the principal immediately and therefore all future interest repayments.
3. Set yourself a realistic budget
Knowing how much you can afford to repay and following a strict budget will help you reduce your home loan faster. Plan carefully and focus on the bigger picture to keep you on track.
4. Make more frequent payments
If you find yourself with extra cash, don’t let it sit around and tempt you to spend. Put it straight onto your home loan. The more you shave off the amount owed, the greater your equity becomes and your future borrowing power.
5. Pay fortnightly rather than monthly
As interest on a home loan is calculated daily, making payments more frequently may help reduce the interest you pay over the term of your loan. Weekly payments don’t accelerate the effect like bi-monthly payments, but they still put you ahead due to the way interest is charged.
6. Increase the amount of your repayments
The more money you owe, the more interest you will pay. By making increased or additional repayments, this can cut your home loan by years and ultimately save you thousands of dollars.
7. Round up – every bit counts
The majority of banks will allow you to nominate the amount you want to make each repayment. This means you don’t have to pay just the minimum amount. If your budget is tight, you can simply round up the payment to the nearest $5 or $10. Imagine what an impact rounding up to the nearest $100 each repayment would have.
8. Make your repayments in line with your pay cycle
Synchronising your repayments with your regular payday makes budgeting easier. Your mortgage is ultimately the biggest investment you will make in your lifetime. Make your mortgage repayments your priority.
9. Consider a mortgage offset account
An offset account is a transactional savings account linked to your home loan. When interest on your home loan is calculated, the balance of your offset account is taken off the principal amount owing. This can reduce the amount of interest you are charged and help you pay off your home loan faster.
10. Don’t lower your minimum regular repayment if interest rates fall
If interest rates fall, a good way to get ahead of your mortgage commitments is to keep paying your home loan off as if you still have a higher rate of interest. Be disciplined and committed to this principle and you will be rewarded in the long run with a mortgage paid off faster.
SOURCE: www.homesales.com.au
