Investment Property: Five ways to cut your mortgage
Last week’s decision by the RBA to cut the official interest rate to 2.5 percent was helpful. However, reducing your mortgage takes dedication and smart decisions by you! Here are five ways to cut your mortgage!
A mortgage is the biggest financial transaction you will encounter in your lifetime but doesn’t have to take a lifetime to pay off!
Most home loans are planned by the banks and lenders to take between 25 to 30 years to pay off. This time period means that a huge amount of your repayments accumulate in interest and go straight into the pocket of your lender.
The ultimate goal for all homeowners is to be paying the PRINCIPAL of your loan, not the INTEREST.
Planning your repayments so that they chip away at the principal and don’t just pay they interest could help you to cut as many as five years off your mortgage.
Helpful ways to cut your mortgage
Pay your mortgage fortnightly instead of monthly
Planning your repayments this way means that you will be paying for 13 months a year rather than 12, effectively cutting a couple of years off your mortgage.
- Pay your salary into an offset account linked to your home loan
In these types of accounts, the balance of the savings account is offset against the amount owing on your mortgage. The interest on your mortgage is then calculated on the about owed minus the balance of the account resulting in lower calculated interest.
- Put your tax return straight onto your mortgage
You’ve lived the year without this money anyway but instead of treating yourself with material possessions, putting it straight into your loan will pay off with a greater reward in the future.
When interest rates drop, keep your repayments at the same level
Last week, the official interest rate dropped to 2.5%. Over the coming weeks, many lenders will see homeowners adjusting their repayments to save money NOW. However, by keeping your repayments the same, year’s can be cut off your mortgage and you save MORE in the long run by keeping that unnecessary interest, accumulated over years, in your pocket.
- Look stretching your budget to accommodate paying an extra 10% per month
“Paying an extra 10 percent in repayments each month towards a 25 year home loan, you will take 4.25 years off the loan regardless of the size of the loan.” Mark Bouris, executive chairman of Yellow Brick Road Wealth Management, told Rate City this week.
Written by Jordan Cox and James Prawner
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