Pay Your Mortgage Off Faster & Get The Mortgage Monkey Off Your Back
- August 6, 2018
- Posted by: Quarles Business and Financial Strategists
- Category: Financial Advice
You have worked hard, saved up some cash and finally moved into your own home. Congratulations! 🎉 🎈
Life is sweet. 😌
Except for those annoying monthly mortgage repayments! 😌 😡
Your home loan is typically a long-term financial commitment that can last for decades. Without the right home loan and mortgage repayment strategy, this can end up being a very costly endeavour.
We’ve created a comprehensive guide to help you pay your mortgage off faster and save money. Time to start getting the mortgage monkey off your back.
Choose the best home loan
If you are trying to get the mortgage monkey off your back, it is important to first consider the size of the monkey.
It’s a much easier task if you aren’t wrestling with King Kong (although we’d definitely book tickets to see that!)
Even if you are already committed to a home loan, it might be possible for you to switch to a better one. Look at the exit fees on your old loan and establishment fees of your new loan and see if it’s possible.
If you are switching to a much better deal, it might be the time to go for it!
Let’s get into what type of home loan you should be looking for.
Find a home loan that suits your needs
When choosing the home loan for you, consider what you want. There are many options available with varying interest rates, repayment options and total payments over the life of your loan.
Think about your ideal monthly repayments and what features you might need before you start looking at the different options available. Different loans have different purposes, so it is important to find one that suits your needs.
Here are a few things to look for when choosing your loan.
Avoid honeymoon rates
While honeymoon rates might look great on paper, the reality can be a more expensive home loan in the long run.
After the honeymoon period of this loan, the lender will switch you to a higher rate of interest. This rate is often higher than the rate of basic loans, meaning you end up paying more.
Even if the rate isn’t higher, the honeymoon rate only applies for a short period of time and does not make much of a difference in the long run.
It may also be costly to refinance to a cheaper loan after the honeymoon is over. This means that taking advantage of the honeymoon rate and then switching loans isn’t a viable strategy.
You should instead focus on finding the right home loan rate that you will be paying over the life of your loan.
After the honeymoon comes married life, which is more important and longer lasting.
Consider a professional package
Depending on the size of your loan, a professional package may suit you. This is where you receive discounts on a range of products and services by paying one annual fee.
If you are looking for a loan larger than $250,000, then a professional package could be a great way to save money.
Get a split loan
Choosing between fixed vs variable loans can be difficult, as a fixed loan ties you down to one interest rate while a variable loan could increase depending on how interest rates change.
Without knowing what will happen to interest rates, it’s a tough decision to make.
A good way around this is to get a split loan, or combination loan, which allows you to divide your loan between both fixed and variable rates.
This allows you to hedge your bets on how the interest rate will change, and get the best of both worlds. You can then make repayments based on which part has a higher interest rate.
Ask for a profession discount
Some lenders will offer you a discounted rate depending on your profession. While this may be unlikely, it is definitely worth a shot asking your lender if you qualify.
Check out the smaller lenders too
The big names may be your first preference for a home loan, but don’t overlook the smaller lenders. You might be able to secure a better interest rate.
Sometimes borrowers are concerned about whether it is safe to go to a smaller lender, and what happens if your lender goes bankrupt.
Don’t forgot that you have their money, and not the other way around. This does not pose the same threat as a smaller bank, so don’t worry too much.
Widen your search and consider the smaller lenders as well.
Find a portable loan
Whether or not you are planning to move during the life of your loan, it is impossible to know what exactly lies ahead.
Make sure your loan is portable, and avoid what could be large costs in the case of an unpredicted move.
Keep an eye on the home loan market
Before you jump into a new loan or talk refinancing with your existing loan, make sure you do your research on what rates and features are being offered by each lender.
Don’t be afraid to talk to lenders and find out whether they can offer you a better deal, especially if you have better options available in the market!
Remember, having a home loan doesn’t mean that the search is over. Rates change over time, and it is always possible to switch loans even if you have to pay a transfer fee.
Make sure you are getting the best deal possible.
Once you have found the right lender and a reasonable interest rate, let’s start working on those repayments and getting the mortgage monkey off your back!
Smart Mortgage Repayment Strategies
You don’t want your home loan repayments to last forever. It’s not a fun feeling having to pay part of your hard-earned cash to your lender every month.
With the right mortgage repayment strategy, you can pay off your home loan sooner and finally get the mortgage monkey off your back!
Here are a few tips that might help.
Pay it off quickly
When it comes to home loan repayments, speed is the name of the game. The faster you can pay off your mortgage, the faster you are free from your home loan and the less interest it accrues in the process.
Paying a larger amount to your mortgage each month understandably doesn’t appeal to most. However, the huge amount of money you can save is definitely worth it.
So, how should you be paying off your mortgage?
Don’t delay your mortgage fees and charges
Some lenders will give you the option of adding these initial costs to the amount you borrow, but try to avoid doing this.
These costs may seem like a small amount, but the bigger the home loan the more interest you will end up paying (even if the amount is very small.)
Reduce the principal early
In the beginning, you are probably only paying the interest on your loan and not reducing the principal at all. This is the time where you have to work hard to make larger repayments.
If you can manage to start reducing your principal early on, you will notice a big difference down the line. A large sum of money early on could cut years off your loan!
Start paying your instalments a month early
Although your first instalment might not be for a month after settlement, consider getting ahead of the game and paying your first instalment early. While this might not seem like it makes much of a difference, any extra money you can pay now will help down the line.
Set a goal for a higher repayment rate
Making large sum repayments might be impossible for some people, and simply trying to get together more money for your monthly repayments isn’t working.
Consider setting yourself a simple goal, such as making your repayments at a higher rate. If you have a loan of 4 percent, try paying it back at 5 percent.
This small increase will end up being a significant amount, and can be a great achievable goal for you to start getting on top of those repayments.
Start paying your loan fortnightly
Another great way to start paying a little more off your loan is to make fortnightly repayments instead of monthly repayments.
This might sound the same, but it is important to note that there are 26 fortnights in a year instead of 12 months. Paying on a fortnightly basis will essentially mean you are making 13 monthly repayments each year instead of 12.
You probably won’t notice much of a difference switching to fortnightly repayments, but your home loan will!
Don’t ignore your home loan
Mortgages aren’t the most fun topic to think about, especially over the life of your loan. While it might be tempting to forget about it and just make the monthly repayments, this will be very costly in the long run.
You should continue to follow these repayment strategies and keep checking the market to make sure you are getting the best deal.
Stay informed and keep making those repayments!
Remember, the more money you pay back on your home loan now will come back to you plus some in savings over the life of your loan. Every little bit helps!
How to manage your finances
Your mortgage may be the biggest aspect of your finances, but it is certainly not the only one.
Since your goal is to pay off as much money as possible, being on top off your finances and making good financial decisions is key.
Have you ever heard the expression, “a saving a day keeps the mortgage monkey away?”
Here’s a few financial decisions that might help you start making larger repayments and get that mortgage monkey off your back!
Consolidate your debts
On top of your home loan, you may also have personal loans and credit card borrowings that you have to deal with. These will both have a higher interest rate than your home loan.
Many lenders will allow you to consolidate your debt, adding these debts to your home loan to make one large sum.
This means that instead of repaying these debts at a higher rate, you will pay them back at the same rate as your home loan.
If you are unable to combine your debt, you should focus on repaying the debts with a higher interest rate before you start making additional repayments to your mortgage.
If you are feeling overwhelmed by debt, book a free consultation and we’ll show you how you can reduce it.
Borrow using your equity
If you are making expensive purchases and need to borrow money, you can use the equity you have accrued through your loan repayments.
Equity refers to the difference between the value of your property and the amount you owe the lender (the part of the house that you now own.)
Most lenders will allow you to borrow money using your equity as collateral, and avoid paying the higher interest rates of other loans.
Large expenses like house renovations, cars and holidays can be borrowed under the lower interest rate of your home loan.
Although it is a good idea to be putting your extra income towards your home loan, any money you do save through cheaper interest rates can go towards your home loan later.
So, if you do need to borrow more money this may be the way to go.
Grow your money through investments
If you have a low interest rate, there may be an opportunity for you to invest some money instead and start growing your money.
Start by paying the minimum monthly repayments and making smart investment decisions. As long as the money you earn from your investments is more than the interest on your mortgage, the investment is worthwhile.
This could result in being able to pay off big chunks of your home loan down the line.
However, investments always come with a risk. If you are considering investing to pay off your mortgage faster, talk to an experienced financial adviser.
Create an offset account
An offset account is a savings or transaction account that is linked to your home loan. The amount of money in this account is offset against your home loan, which means that you pay less interest on your home loan.
Creating an offset accounts means more of the money you repay comes out of your principal, which can speed up your repayment process.
Save every penny!
Unfortunately, cutting out some of the luxuries and unnecessary expenses from your life is a great way to save money.
Money that can then be put towards your mortgage.
While the daily coffee, movie trips and other small treats are an enjoyable part of life, they are also expenses that you could be putting towards your mortgage.
This is definitely something you need to decide for yourself. We aren’t going to slap you on the wrist every time you go to buy your morning coffee.
Thinking about where you could cut back is a great place to start. If you are looking for ideas on how you can save more, check out our 8 effortless money saving tips!
Paying off your home loan is a huge task, something that is going to take you a while.
If you follow these simple tips, you should be able to get the mortgage monkey off your back much sooner!
Not to mention all the money that you’ll save.
If you would like to talk to the experts about how you can better manage your finances and start repaying your mortgage faster, Book A Free Consultation today!