Mortgages, like life insurance, are one of those ‘we all gotta have one’ kinda things, and I think we’d all agree that applying for a mortgage is not much better than kids’ exam week! Digging out pay slips, finding the passport in the back of the filing cabinet and working out the monthly expenses…..it’s almost enough hassle to make you go for a portable tiny home! So, for most of us, once we finally get that approval message, we breathe a sigh of relief and get on with flipping pancakes in our new kitchen. Done and dusted. And the mortgage payments just keep coming out every month like clockwork, and we don’t even think about it.
Well, what if we told you that it’s worth significant $$s in your back pocket to think about your mortgage a little more closely? And, specifically, to think about how to reduce it. There are some pretty simple ways you can reduce that mortgage drain and pay off your home loan earlier. It’s not rocket science but it’s often missed by busy homeowners:
Increase your payments
I know, you’re already stretched paying the mortgage, so why would we suggest paying more? But wait, we’re not talking about thousands here, even a small increase like $100 a month can take years off the life of your mortgage.
Pay more frequently
The standard repayment schedule for home loans is monthly, but it’s interesting that just making repayments once a fortnight instead will squeeze in a few extra payments per year. And we’re betting once you have that schedule in place, you won’t even notice the extra coming out, but your home loan will!
That devil..interest rates
You might think you got a pretty good deal with your interest rates even as recently as a couple of years ago, but interest rates have lowered even further. It might be time to review yours! Even a 1% interest saving over the lifetime of a loan is ludicrously significant. Even if you’re on a fixed term interest rate, it’s worth checking out if getting a better interest rate deal is worth the exit fees you’d need to pay. Don’t be afraid to shop around and use the expertise of a mortgage broker to sniff you out the best deal.
Offset your loan
You might think bank managers are just trying to get more business when they talk about offset accounts, but actually it’s a smart way of reducing interest costs. The balance in the offset account ‘offsets’ the home loan principal, and the interest is then calculated on the principal minus the offset account balance. It’s not exaggerating to say that using this method could reduce the term of your loan by half! For example:
Loan amount $500,000 (Interest rate 5%)
Offset $100,000 (interest rate 2%)
Annual interest benefit $3,000
Now there’s a handy little amount you could either plough straight into the mortgage or use for other expenses. And the beauty is, once it’s set up, there’s no hassle to you, your money is just simply working better for you!
Mauritius or Mortgage?
If you’ve been lucky enough to win the lottery or even just snagged a big commission check this month, it is definitely worth being called ‘Mr boring’ by throwing some of it into your mortgage. I know, Mauritius may be way more fun, but reducing your mortgage will give you a better lifestyle in the long run. Maybe just downgrade the holiday to a highrise at the Goldie and donate the rest to Mr Mortgage. You’d be Mr Smart for doing so!
So don’t be one of those ‘set and forget’ people when you could be making your money work so much better for you. And if all this seems too hard (or you’re simply too busy) that’s where professionals come in who spend all their time watching interest rates and poring over the market…so you don’t have to!