- Personal Finance
Home Loan & Mortgage Repayments: Paying Off A Loan Fast
Guide To Paying Off Your Mortgage Fast
The majority of those looking to buy a home are left with no choice but to take out a mortgage for a hefty amount of money, especially for those living in the more expensive suburbs around the world. With the exception of millionaires and lottery winners, the majority who take out a mortgage are left paying the principle and interest of this ugly debt for at least 10 years.
Purchase a property that will appreciate in value. You don't want to be paying $600,000 back to the bank in mortgage repayments for a property which you initially purchased for $400,000 unless you're certain that by the time the loan is paid off, the property will be worth at least the $600,000 paid back in mortgage repayments.
Save as much as you can by borrowing no more than you need to. Take out a mortgage with a low interest rate and aim to make additional repayments.
Comparison Interest Rate
1) Look at the comparison interest rate
When deciding on a mortgage provider, look at the comparison mortgage interest rate. This takes into account any fees and charges which may be applicable over the course of the loan such as an annual fee, additional fees if you want to make additional loan repayments, mortgage discharge fees, etc. Most financial institutions will tempt you with a standard variable rate which can be 1-2% lower. This doesn't necessarily mean that you'll be getting a better deal. Instead you may end up paying a greater amount in fees and additional interest repayments over the course of the loan.
Weekly or Fornightly Home Loan Repayments
Most mortgage companies will offer you the option to pay off your mortgage on a monthly, fortnightly or weekly basis. The more frequently you make the payments the better off you are. By the end of the loan, this can mean saving thousands of dollars over the life of the loan.
Fixed or Variable Interest Rates?
3) Fixed or Variable Interest Rates?
Before taking out a mortgage, analyse the way interest rates are heading. If they're looking to go down in the next 1-5 years, take out a variable loan. If rates are looking to go up, then take out a fixed rate. Fixed rates are generally at least 1-2% greater than on variable loans. Fixed rates are also locked in for a set period, such as 1 year, 3 years or 5 years. Don't be tempted to go with a 5 year fixed rate if it looks to be slightly lower than the standard variable rate as economic conditions may allow you to save an extra 1-2% on your mortgage rate over those years simply by having taken out a variable loan which is adjusted based on the official cash rates set by the Reserve or Federal Bank.
Hidden Bank Fees & Charges
4) Investigate All Home Loan & Mortgage Fees
Financial institutions will generally include additional fees and charges so read the fine print. Avoid paying additional mortgage fees and bank fees by investigating the comparison interest rate and any other fees listed in the PDS. Examples of various fees & charges include:
- Mortgage early exit fees or mortgage discharge fees
- Annual fees or account fee,
- Dishonoured payment fees should your payment fail on the due date.
Meeting Your Loan Repayments
5) Make Sure You Have Enough Money In Your Account To Meet Your Repayments
Most banks charge a ridiculous fee for a dishonored payment. Ensure you have enough money when your loan repayments are due to avoid these fees and to avoid defaulting on your loan.
Additional Loan Repayments
6) Make Additional Loan Repayments
Each time you make additional repayments, you're immediately reducing the amount of interest you'll be paying on the loan. this also means that instead of having to pay the loan over the initial 30 years as stated in the mortgage documentation, you may be able to pay it off in 15 years. Paying off the loan in half the time can also mean that you'll be paying off half the amount of interest that you would have otherwise paid if you did pay your loan over the usual 30 year term.
Manage Your Spending
7) Cut Down On Unnecessary Spending
Most people still like to enjoy the luxuries of life without taking into account the burden of their home loan. Some examples include expensive dinners, buying a new car or renovating the house. Although it's good to indulge, if you can buy something for half the price which can do the same job, you're better off. Every saving you make will assist in paying off the loan, therefore helping you to repay the loan quicker and easier.
Saving Your Income
8) Save Up For The Things You Enjoy
If you're looking to buy a new lounge or a new car, it's best to save up over a few weeks or months before making the purchase or else you'll only be forcing yourself into greater financial stress such as an extra few thousand dollars added to the mortgage which will also accumulate interest, or even failing to have enough money when the next mortgage repayment is due.
Bear in mind that the house or apartment isn't yours until you've paid for it in full, just like any other item which may be purchased by means of financing. Defaulting on your loan may mean being forced to live on the street or renting in a place where you would rather not be living. If you're struggling to meet your monthly repayments, talk to a financial adviser who will be able to assist you in asking you about your current income and expenses, while also guiding you through the necessary steps to help you live more comfortably and pay off your loan sooner, even if it means selling your owns and buying a less expensive property.