Is 2019 the year that you get a plan in place to be mortgage-free faster? Then this read is for you.
First of all, keep this in mind: even small amounts over time can result in significant wins. That is, you don’t have to be in a position to double your repayments or contribute big lump sums on a regular basis to make an impressive dent in the time it will take to pay off your home loan. Every little bit – with the multiplying effect of time – counts. Here’s how…
Pay a little more every time
Let’s start with the obvious option of increasing your repayments, and the often not-so-well known impact that even $100 a month can make over time. Here’s an example:
$600,000 home loan, 25-year term at 5.5%, with a monthly repayment of $3,685:
If you’ve had a look at the budget and can see an opportunity to pay even a little extra off each month, now’s the time to do it: the sooner you start the greater the impact you can have over time. Get in touch if you would like to review your home loan structure and options for boosting your mortgage repayments.
Put lump sums to work
A bonus from work, maybe a tax refund or perhaps savings on the side that could work harder for you on the mortgage… If you have some extra cash, find out if your mortgage allows for lump sum payments (not all do) and consider putting that cash on the mortgage – it can have a considerable impact on interest savings.
If your monthly repayment is a true monthly figure (ask us or check with your lender), you could pay an extra full month each year simply by splitting your monthly mortgage repayment in half and paying fortnightly instead.
Because there are slightly more than two fortnights in a month, by paying fortnightly, over a year you’ll end up paying an additional monthly repayment. This can be a great way to spread the impact of an extra payment across 12 months.
Consider a revolving credit mortgage
Revolving credit mortgages are essentially like a big overdraft – your whole salary is paid into the revolving credit account and you can use that account to pay bills and expenses.
Because interest is charged daily, the aim is to have as much income sitting on the mortgage and to minimize expenses coming out for as long as possible. This can also be achieved by using the interest free period on your credit card for bills and expenses during the month. Then when your credit card bill is due, you can use the revolving credit account to pay the balance before the monthly due date.
Revolving credit mortgages can shave years off your mortgage term and save considerable interest costs, but they definitely require discipline and planning. Blowing the expense budget regularly or dipping into the revolving credit account for an extra purchase here or there can swiftly have an eye-watering impact on the total cost of your mortgage.
Do what you’re doing now…
That is, give your mortgage and your goals some thought, do some research, get some advice and make a plan. Often the mortgage structure we start with needs to change over time. That can simply be making higher or lump repayments or a complete restructure to give you more options to become mortgage-free faster. Whatever your goals, we welcome you to get in touch. We’re here to answer any and all mortgage queries.
Adapted from Financial Advice New Zealand