Five simple ways to increase your loan repayments
Paying off a mortgage can seem relentless and endless – every payment counts of course, but it can seem to be taking forever to make a dent. Here are some simple ways you can increase the amount you pay off and own your home sooner.
Reducing the principle on your mortgage as quickly as you can means paying less interest, so your future payments are going even further towards reducing that principle.
To find the ideal balance between the extra repayments you can afford to make and the time this will shave off your mortgage term, use a mortgage calculator
For example, on a $600,000 loan at 3.99% interest, a monthly repayment of $2861per month will see a total term of 30 years and a total interest cost of $429,972. By allocating an extra $250 per month on the same basis you would SAVE $69,174 and 4 years and 3 months.
So, here are five simple ways to increase those mortgage repayments.
Ignore your the bank
Well, sort of. Don’t pay any attention to the amount that you are told is the minimum repayment, as long as you pay more. Work out the most you can afford to pay, think of this as your minimum repayment, budget for it and stick to it.
Think of every step you take towards reaching your goal of owning your property outright as a way of treating yourself. Sure, an expensive bottle of wine is nice, but doesn’t taking a year off your loan taste pretty sweet, too?
Every single increase to your income, no matter how small, should be channelled into the debts that are incurring the highest interest. If this is your mortgage, send it there. Do the same with your tax returns, any bonuses at work and even cash gifts.
Track your spending
There are apps that you can download to track what and where you are spending your money on, and trim where necessary, then channel the savings into your mortgage payments.
Think of all those little things you don't really notice yourself pulling out your wallet for. In one week, that extra coffee on Monday morning, a sandwich from the cafe instead of one you have made yourself, that round of shots you probably shouldn't have shouted on Friday night and getting your nails done on Saturday add up to $150. Over a month, that's $600. Increasing a monthly repayment from $3000 to $3600 could trim more than 10 years off the term of a $500,000 loan. Now how much do you really want that coffee?
Eyes on the prize
Watch the forecast term on your mortgage – seeing it go down will motivate you to work even harder.
Talk to an expert
Talking to your finance broker about refinancing options could reveal a way to pay down your debt sooner even without increasing repayments. A finance broker will be able to look into whether you may get a better interest rate or lower fees with another lender, or even with your own, and will be able to help minimise any refinancing costs.
This is especially important each time your goals or your financial circumstances change. If you are earning more than when you took out your loan, you have paid off a personal loan or a credit card since that time, or your property’s value has risen, your finance broker may be able to negotiate a far better deal than the one you are on.
For example, if your finance broker negotiated your interest rate down from 5.22% to 3.99% on a $500,000 loan, on which you are making $2752 monthly repayments, this would change to $2385 a saving per month of $367. Maintaining the $2752 payments agains the revised interest rate would save you a potential $89,000 plus 6 years 8 months off your loan!
Contact Robert Simpson today to discuss your options