The big secret?
Getting rid of that big debt involves paying more, more often.
Divert pay rises and bonuses to your mortgage. Every time you receive a pay increase or a bonus, divert the additional income to your mortgage.
Trim your rate
Banks have a small amount of leeway when it comes to interest rates. Negotiate with yours for a lower rate in order to retain your business.
Review the structure
Rather than putting the entire mortgage on a fixed rate, leave a portion floating or in revolving credit. The latter works like an everyday account and home loan in one, allowing you to reduce the balance on payday, so the outstanding capital is lower for a good part of every month. Only financially disciplined people should use revolving credit mortgages.
Paying half your monthly mortgage payment fortnightly will save you money in two ways. First, banks calculate interest on the daily outstanding loan balance, so more frequent payments reduce the debt faster. Second, there are 26 fortnights in a year rather than 24. It means you're paying nearly 13 months of loan repayments every 12 months.
Shorten the mortgage term
In today's market, many home buyers are choosing 30-year terms or even interest-only payments because they simply can't, or think they can't, pay any more a month.Shortening the term as soon as is possible, or overpaying to create the same effect, will pay off handsomely. A 25-year, or even 20- or 15-year term, results in significantly less interest being paid.
Keep paying when the interest rate drops
If your monthly payment drops by $250 after an interest-rate cut, but you keep up the original repayments, you could save tens of thousands of dollars of interest over the life of the loan.
Round your payments up
If your monthly payments are, say $1629.17, you might round up to $1650 or $1700. The overpayments reduce the outstanding principal and therefore the interest payments each month. They also create a buffer in your mortgage account, which can be fallen back on if you can't make a payment at some point in the future. Beware that your bank doesn't charge a penalty for overpayment. Some do.
Resist buying a new car or boat and adding it to your mortgage
This returns you to square one. $20,000 paid off on a three-year personal loan at 12.5 per cent will cost approx. $4086.61 in interest. A $20,000 car or boat added to a 5.5 per cent mortgage over 15 years will cost approx. $9414.68 in interest.
If you're thinking about whether selling could be an option, or looking to buy in beautiful Titirangi and the surrounding suburbs, don't hesitate to get in touch.
Phone Di today 021 998 994