If you’re like two-thirds of homeowners, the chances are that you took out a mortgage to finance your big purchase. Perhaps you got a favourably low-interest rate. Even then, paying off your mortgage sooner can do wonders for your financial freedom and personal finance.
Here are 5 tried-and-true tips for repaying your home loan faster.
First Things First: Why Pay Off your Mortgage Sooner?
Ask any homeowner, and you’ll hear complaints like “interest on my mortgage is killing me!” And, yes, the interest you pay on your mortgage can rack up pretty fast. By paying off the mortgage sooner, you will save yourself oodles of money in the long run.
Tip #1: Tighten Up Your Belts – Plan and Budget
Paying off a mortgage faster means that you need to make significant sacrifices – financially, emotionally, and physically. You need to drive low-maintenance cheap vehicles, know how to bring down the cost of food, utility bills, and even cut back on everyday luxuries such as coffee or dining out.
No matter how you look at it, this means a massive budget overhaul. By budgeting, we mean cutting off the extra slacks, the waste, and not depriving or starving yourself. According to a study by Nielsen, you can actually save up to $60,000 annually if you stick to your budget. That’s 60000 bucks down on your mortgage!
Tip #2: Throw “Unexpected” Money at Your Mortgage
It happens – people win lotteries. Have you received a huge end-year bonus? Did you get any windfall during the year? Did your grandpa or grandma leave you a fat check? All those windfalls and “unexpected” money should be directed towards payment of your mortgage.
Tip #3: Switch to Biweekly Payments
Making monthly repayments will get you nowhere unless you increase the amount and frequency of repayments. Consider making your repayments every fortnightly or weekly. It might sting a little at the beginning, but you’ll get used to it.
Tip #4: How About Downsizing?
If it isn’t too much trouble, you might want to sell your bigger house and move to a smaller, less expensive home. This way, you will bring down monthly utility bills and get something extra from the sale to throw at your mortgage.
Tip #5: Leverage a Mortgage Offset Account
You can reduce the interest charged on your mortgage by creating an offset account so that some of your savings and income can go directly into paying off the mortgage.
There you’ve it — 5 tips on how to pay off your mortgage quicker and save money. When all’s said and done, no-hassle mortgage repayment boils down to getting a good interest rate and favorable home loan terms.