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9 Proven Tips To Pay Off Your Mortgage Faster
Whether you have a mortgage for your home or multiple mortgages on your various property investments, there will come a time when you think about whether you should pay off the loan faster than the standard repayment schedule.
There are some obviously very good reasons concerned with leverage to keep the loan as it is. Sometimes, in an effort to stretch their gearing, people even restructure their home loans to a longer tenor.
Usually the consideration of paying off early is associated with a regular home owner who has no interest in getting more leverage. But from an investor standpoint, it can also be a pragmatic decision to make.
No matter what your reasons are to repay faster, here are some tips that can help you come to a useful repayment strategy.
1) Increase your monthly payments
Common sense tells you that the higher the instalments you make, the faster it is to fully repay it.
But what you might not realize is that the shorter your tenor, the less accumulated interest you will end up paying.
So it acts like a double punch you dish out to your lender. The more you repay each month, the earlier you fully settle the loan, and the lesser interest you incur.
2) Switch from monthly repayment to fortnightly
You might have never played with numbers this way. But with some simple calculations, you will find that you will be making an additional payment each year when you switch from monthly to bi-weekly payments.
Even though the savings can look negligible on the surface, over 30 years, it can add up to savings worth 20% – 30% of your original loan amount.
That’s nothing to sneeze at.
3) Make your loan account your salary deposit account
Again, this is a play of dates and figures. It works even better when you are on one of those mortgages that does pro-rated daily interest calculations.
Since your salary is deposited directly into the repayment account, when your salary is deposited into your account a day or 2 early, you effectively save yourself from a day’s interest.
Early salary deposits happen more often than you know with holidays, weekends and long weekends wreaking havoc in your HR department.
4) Make lump sum partial redemptions
When people receive financial windfalls, the first thing they do is to reward themselves with their families or dump them straight into a fixed deposit account.
Although that looks like a pragmatic and prudent thing to to, don’t make it a habit of doing without thinking.
If timed deposits are giving you 1% interest and your mortgage costs 2%, the savvy thing to do is to use the money to partially redeem your loan instead of letting it sit in your deposit account.
Do take note of your cash flow position before taking this course of action though. Because once you put that money into repayment, you won’t be able to get it out unless you have some line of credit against your house.
5) Maintain your payment amount even when variable rates fall
You might be tempted to repay a lower amount since your variable rate mortgage went down. But if you are not really in need of the extra dollars, continue paying the higher instalment so as to offset your principle.
You might even be grateful for this move should variable rate go up in future. Interest rate movements have been unpredictable since 2008.
6) Manage credit
Varying credit card due dates offer you an opportunity to play with your money like a pro.
If you charge all your daily expenses to a credit card with the most delayed due date, you are effectively getting free financing as long as you repay the full outstanding amount before the due date.
During that period of time, the money you leave in your loan repayment account will continue to save you interest on a daily basis. Then use that money to repay your credit card bills on the last day.
If you intend to give this a go, you have to be very clear on the terms of your cards and mortgage to get it right.
Because should you miss deadlines or fail to make full repayments, you could be looking at higher interest charges and late payment fees. And your credit score might suffer.
7) Use the internet
I’m stumped that there are still homeowners who continue to pay their monthly mortgage obligations with cash deposits, checks with snail mail, and queuing up in the bank.
Online transactions are no longer how they were in the 1990s. During those days, consumers were constantly worried about the security of sending and receiving money online.
These days, advanced cryptography is used to make online transactions as secure as you can imagine.
Embrace technology and make use of online transaction services. You save time and money.
8) Consolidate Debts with home equity loans
If you have a number of creditors, it might be a smart move to take up a loan against your property to repay them.
A home equity loan is secured against the property. Therefore it will be cheaper than other loans available in the market.
This method does not allow to repay your mortgage faster. But you get to repay all your other loans with cut-throat interest rates quicker. You get into a much healthier financial position. However, consider the drawbacks of such loans too.
Every lender is essentially selling you the same thing. So you should make an effort to get the best deal for yourself.
Review the available mortgages in the market each year. Should you find that you are overpaying compared to the market, refinance without remorse.
Also note of the closing costs before doing so. You definitely want refinancing to be worthwhile financially.