Mortgage Reduction Tips
Discovering The Road To Financial Freedom
The procedure of paying off a mortgage can be completed faster through a process known as mortgage acceleration. The system of compounding interest on mortgages reduces the principal balance on any additional early repayments quicker while diminishing the compounding of the interest and the set period for full repayment of the mortgage.
It may be the largest financial hurdle to overcome, but paying off the mortgage in full ensures a debt free financial future. Here are a few tips to help you make early mortgage repayments in full.
Making Extra Payments
Irrespective of all the information and advice out there, making extra payments on the principal is the only way of ensuring you pay off the loan earlier than usual. Paying the principal is the basic principle in repayment of any debt.
With this in mind, note that the strategies mentioned in this post bear no exclusivity in regards to quick mortgage repayments, mixing and matching a few of them might offer a better solution than the independent use of just any one of them.
If you’re not sure what’s the right approach for you, contact a professional home loan expert.
Opting to sell the home to buy a smaller one or rent one using the equity you have gathered over the years is a good way of settling a heavy mortgage fast. However, this might be an unpleasant or even complicated route to take especially if your mortgage debt is more than your home is worth.
2. Accelerated Fortnightly Re-Payments
Do fortnightly payments make a difference? The fact is they only make a difference if they are carefully calibrated. The real trick lies in the acceleration bit of making the payments. The fortnightly accelerated payments are half of the normal monthly payments, which adds up to 26 yearly payments. This totals to an extra monthly repayment each year. Banks might take you for a fool more so when they use their method of multiplying your current monthly payments by 12 then dividing it by 26, do not let them fool you.
3. Treat a 30 like a 15
It may sound obscenely impossible, but it is very achievable. Just aim at turning that 30-year mortgage into a 25 or 15 years repayment plan. Granted the monthly repayments will need to be more, but the term of the loan diminishes and saves a massive amount of interest saving.
People who lack the knack for saving or working on a budget can benefit from this tip as it simply forces them to adopt a saving program. It nonetheless demands you make sure your current financial capacity can support such an undertaking before you even start it.
4. Pay As Much as You Can Whenever You Can
Unscheduled extra principal payments are well-disguised financial perks. In fact, some people view them as an alternative to investing. For instance, you have an 5% outstanding mortgage, and there is that sweet 4% Term Deposit deal. The best pick would be to put the money into repaying the mortgage, which is a tax-free investment.
5. Avoid Squandering Your Tax Refund!
According to a home mortgage calculator result, a 5% mortgage rate in which you put in around $2000 as yearly principle repayments can reduce your 30-year mortgage by around six and half years. So, why waste your tax refund. More so if it is higher or has a high-interest rate! Make the wise call and avoid these poor financial decisions.
6. Cut Back On Expenses
That large extra repayment you make will definitely put some financial strain on your other spending. As such, it makes sense to cut back on expenses. It is never that hard. Just cut back on those luxuries that you know you can easily do without as you also research on various ways that you can use to spend less.
Weigh up in your mind, is it better to have those two Gloria Jean’s coffees every day, or would you prefer to take years off your mortgage and save tens of thousands of dollars in interest?
7. Debt Consolidation Loans
Debt consolidation has been a saviour for many people bogged down by huge debts. Nevertheless, they still pose the chance of becoming a thorny issue too. The secret to seeing the positive outcomes of this option of a debt consolidation loan is to ensure that the money saved is directed to making those extra mortgage repayments.
That may seem a bit off, but short term debts will just add to existing financial strain. Those credit card balances or the car loan you refinanced into your home loan can quickly transform into a long-term debt. The compounding interest arising from this will only lengthen the debt repayment period. Bear in mind that the main objective is to be debt free not sink further into debt.
8. Home Loan Refinance (Possibly)
You might want to look into refinancing especially if it has promising chances of reducing the interest rate. The math to this is simple; a drop in the interest rate will diminish the monthly repayments, and this will give better chances of comfortably making larger extra mortgage payments.
If you are already managing to repay the mortgage with large extra repayments, then refinancing might not be what you need to consider. Stick to that aggressive path you are in, and you will be done with your home loan in less time.
To successfully save money on a refinance the approximate rule of thumb is to obtain a reduced interest rate of .5% or more.
9. Mortgage Offset Account
The amount of money flowing into and staying in the account determines the overall amount one can save with these types of loans. There is nothing special about a mortgage offset account in comparison to any other normal account. The only difference from the rest is that the amount of money in the account offsets the interest on mortgage debt to that exact amount.
For instance, you have a $400,000 mortgage with say $10,000 in your mortgage offset account. This means you will only have interest charged on $390,000.
10. Professional Help
Seek the free services of a professional mortgage broker, who knows and has more expertise in the field of home loans and to help people save money while sorting out their mortgages.
Bottom-line is accelerated mortgage reduction techniques are a great way of achieving quick financial freedom from mortgage debts.