10 things you can do to take control of your mortgage
How fortunate are you to have mortgage? I say VERY fortunate!
We live in one of the best countries in the world and your mortgage says you are on your way to possessing your very own little piece of it.
You are on track to financial independence! Hooray!
In the meantime, however, it can be somewhat overwhelming to be responsible for such a significant debt. You’re beholden to your lender to repay a vast amount of money…eeeeek!
When I feel overwhelmed, I like to work out what I CAN take control of. And trust me, there are loads of smart ways for you to take control of your mortgage.
So, ta-dah, here are my “Top Ten Tips for Taking Control of your Mortgage”.
1. Is your loan the right one for YOU?
When it comes to choosing a home loan please don’t just look at the interest rate! There are other factors that you should consider. For example, you might consider a home loan that offers an offset account even if it comes with a higher interest rate as sometimes this will actually save you money in the long run.
2. Do not set and forget
If you’ve had your loan for more than three years, do a review! Your circumstances change. The lending market changes. It’s definitely worth doing a home loan health check every two to three years. If you find your loan no longer suits your needs, it might be time to refinance. This can mean renegotiating your current rate with your existing lender or moving to a new lender that offers a lower interest rate – the aim is to find savings and reduce the term of your principal and interest loan.
3. Make more frequent payments
Look at making the simple switch from monthly repayments to fortnightly repayments. Interest on home loans is calculated daily, so if you make payments more frequently you are likely to reduce the interest you pay over the term of your loan.
4. Pay more than required
Paying more than your minimum repayment amount saves you interest and helps you to be debt free sooner. Duh right? But what is key here is that you shouldn’t feel like this needs to in the hundreds of dollars - $50 here, $50 there - every cent makes a difference!
5. Consider an offset account
An offset account is a transactional savings account linked to your home loan. When interest on your home loan is calculated, whatever money you have in your offset account is taken off the principal amount owing. This snazzy arrangement can reduce the amount of interest you are charged and help you pay off your principal and interest home loan faster.
For example, say you have a home loan of $450,000, with an interest rate of 5%, AND you have $50,000 in your linked offset account. You only accrue interest on $400,000 of your home loan (not $450,000). This means you pay $20,000 in interest per annum rather than $22,500, saving you $2,500 per annum!
6. Pay off the principal - ALWAYS
Depending on your circumstances, you may want to steer clear of interest only loans. Choosing to only pay the interest on your loan for a set period of time will mean that once the interest only period expires, the required principal amount will need to be paid off at a higher propensity. Ouch!
Attacking both the principal and the interest is the best way to get your home loan paid off faster.
7. Keep your repayments steady
If interest rates drop, try to keep repaying your home loan as if it were at the higher rate. The extra money will come off your principal which can help to pay off your mortgage sooner. Win!
8. Know your entitlements
Some lenders will offer discounts and special conditions to people with a specific profession. For example, if you are a certified medical professional, some lenders may waive the Lenders Mortgage Insurance (LMI) or lend at a higher loan to value ratio (up to 90 per cent) before charging LMI. This could give you a significant head start on paying off your loan.
9. Make paying off your home loan a priority
Tightening your belt on some of your less important expenses can add up to significant savings over time. Do you need to buy that chocolate bar at the petrol station, or the branded canned tomatoes?
It’s a boring but potentially fruitful task to review your utilities providers (gas, electricity, internet, mobile, etc) even take a look at your health insurance – compare all the offers and look for ways to save money.
Keep your eye on the prize - the ability to make additional payments on your home loan helps to secure a debt-free lifestyle much sooner!
10. Have a chat to a professional
Please consider giving me a call – I have so much knowledge in this area and I’d love the opportunity to put you in a better financial position.