There is nothing like owning your own home. Not only is it the ultimately Kiwi dream but it also provides you with a stable investment that will continue to increase in value over time.
However, purchasing a home is also a massive financial investment. One that will be with you for the better part of your life. But there are several ways for you to decrease the length of your mortgage, allowing you to become mortgage free a lot faster.
If your budget allows, you should consider changing your repayments from monthly to fortnightly. Why? Simple maths.
As we know, there are 12-months in a year but there are 26-fortnights. Which means you’ll essentially pay the equivalent of one extra month each year. How does it work? For example:
Monthly repayment – $2,000 12 payments in a year – $24,000
Fortnightly repayment – $1,000 26 payment is a year – $26,000
As you can see, changing to fortnightly repayments would allow you to pay an additional $2,000 a year. Which will do wonders for shortening your repayments in the long run.
If you are in a position to, it’s a good idea to remain flexible with floating interest rates. In the event you win the lotto, receive a bonus or any other windfall, it seems like a no-brainer to make an extra repayment or two.
That’s why keeping, at least, part of your home loan on a floating rate is a wise idea. This will allow you to make any additional payments towards your loan without incurring extra fees.
Making these additional payments, will not only reduce the time you’ll be paying off your mortgage but it will also reduce the interest you pay as well.
Don’t drop your repayments
The temptation to reduce your repayments if your floating rate drops, is a tough one. However, consider maintaining your current repayments, even if interest rates drop.
By doing this, you’ll be able to pay-off the principal faster, reducing your outstanding balance and paying significantly less interest in the long run!
This all leads to you paying off your mortgage a lot faster.
Instead, increase them
Instead of giving into the temptation to drop your repayments, if the option becomes available, consider increasing them. Even a small increase in your repayments could make a drastic change in the long run.
Take a second to think, how much you are spending on coffee each morning? What about on a night out? Consider using that money to top up your repayments.
If part of your home loan is on a floating rate, you will be able to top up your repayments by any amount without paying Early Repayment Adjustment (ERA) fees. Every little bit counts. So if you can go without that coffee, this is a simple way of reducing the length of your mortgage.
Shorten your loan
If you are in a financial position to shorten the length of your mortgage, thus increasing your repayments, this is a viable option.
This option means you’ll be able to pay off your home loan faster while also benefiting from paying less interest. Shortening your repayments by as little as five-years could save you a lot of money.
Ultimately, your mortgage repayment structure needs to reflect your financial situation. In a lot of cases, shortening your home loan will require you to change how much or how often you are making repayments. If you are not in the financial position to maintain these changes, ride it out and wait.
If you want to discover your options and what would work best for you, we are always available to help. We would be more than happy to help you understand your position and what is viable. Our experienced and friendly advisers specialise in helping people find the best options for their situation. So please, don’t hesitate to contact us today.
CONTACT COLIN TODAY
027 643 5454