A mortgage is probably the biggest financial responsibility, and most significant investment, that  you will make in your life. When borrowing  large amounts,  interest really plays a part, and effective management of your mortgage can result in huge savings in the long run. To pay off your home loan as quickly as possible, and get on the road to financial freedom or further property investment faster, follow our seven simple steps below: 

  1. Get the loan that’s right for you

Everyone is different, and the home loan market reflects this, with a seemingly dizzying array of simple and complex loan products to choose from. It’s vital that you do your homework, seek professional advice, and find the loan that is the right one for your individual set of circumstances. There are many considerations to take into account, such as whether you’re better off on a fixed or variable rate, whether your loan allows you to consolidate all of your existing debt into the mortgage, the various fees and charges, plus more. One thing to keep in mind, if you’re buying a place to live, is whether there’s a possibility (no matter how small) that you may move before the mortgage is paid off. If so, it’s essential to ensure that your loan is portable, and can be moved to another property should you decide on this option, as some lenders charge huge fees to switch.

  1. Pay as much as possible, as soon as possible

Once you’ve sought financial advice and have got the right loan to suit your needs, it’s time to pay as much as is realistically possible. Once you have confirmed your loan rate, add a percentage point (or two if you can afford it) and make the repayments at this level instead. If you can do this right from the start, you will not notice any difference with the higher repayments, and you’ll also have a built-in buffer against interest rate rises if you’re on a variable rate loan.

  1. Add extra lump sum payments

Try to make extra lump sum payments whenever possible, in addition to your regular instalments. For instance, if you usually receive an income tax refund and/or an end-of-year bonus, put this amount straight onto your home loan every year.

  1. Increase your payment frequency

Now that you’ve ‘increased’ your interest rate, the next step is to increase the frequency of your payments, from monthly to fortnightly. What’s the point of doing this? You’re effectively making 13 monthly payments off your loan each year, rather than 12. You’ll barely notice the difference in terms of your payments, and the few thousand dollars extra each year will make a big difference in the long run.

  1. Make a strong start

Although it’s important to pay as much as you can afford off your mortgage, for the entire life of the loan, the first few years are particularly important. Many people don’t realise that the initial years of a mortgage are really just spent paying off the interest, rather than the loan principal amount itself. By paying a little extra in those early days, you’ll be reducing the capital, which means that you’ll then be paying the interest rate on a lower principal amount.

  1. Consolidate

For many of us, a mortgage is just one (albeit the most significant) of several debts, alongside credit cards and other smaller personal loans. Although the amounts owing on a credit card or personal loan will of course be much smaller than a mortgage, the interest rates are much higher. By consolidating all of your financial products and debts into the one loan, your home loan, you’ll be paying everything off at the lower rate of your mortgage.  Although consolidation can often result in huge savings on interest fees, it’s important to consult a financial expert before going ahead – depending on the amounts owing on your existing other debts, consolidation may not always be the best option.

  1. Keep up-to-date

So you’ve done all of your research, shopped around, carefully weighed up fixed rate/variable, settled on the option that’s best for you, and have sought financial advice. Time to sit back, relax and let that mortgage take care of itself, right? Not quite. Even when economic times are strong, the real estate market is in a constant state of flux, with new types of loan product coming onto the market, and rates changing. Even if you’re on a fixed rate, you could save in the long run by refinancing and switching to a fixed rate loan. It can pay in more ways than one, to keep up-to-date with the market for the entire life of your loan, so you can always be sure that you’re getting the best deal.

www.pulacapital.com.au

 

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