Purchasing a home is an excellent achievement as well as a way to build wealth for your future. Once you begin making repayments, it is easy to feel as if you will continue to pay forever. While you will pay off your house at some point in the future, 15 or 20 years can seem exceptionally far.
Fortunately, there are several ways to help you get ahead with your mortgage, even if you do not have a great deal of extra cash.
1. Make Repayments Fortnightly Instead of Monthly
This may sound like a small matter to some, but making fortnightly repayments will amount to making 13 payments in a year rather than 12 a year. You manage to do this because there are 26 fortnights in a year. For example, if your monthly repayment amount is $2,000, you will pay $24,000 a year.
However, if you opt for fortnightly payments making two $1,000 payments a month, you will pay $26,000 in a year. This is an example of a minimal adjustment that will help you over time.
2. Make Extra Repayments on Your Home Loan
When you have the opportunity to make an extra repayment, you should. Any additional payments made will go towards your principal. The lower the amount you owe, the less you will pay over the life of the loan in interest.
3. Add Extra to Your Repayments
If you do not have the money needed to make an extra repayment, the next best thing you can do is to add what you can to your repayment. Regardless of the amount, you will still come out ahead in the long run by lowering the amount you owe and, in turn, reducing the total amount of interest you will pay over the life of the loan.
4. Use an Offset Account
With an offset account, your extra money is readily available and still helps reduce payments. Offset accounts are linked to your home loan, and the amount you deposit offsets your loan. You will be charged interest on the difference between your home loan and the amount of money in your offset account.
The more money you have in your offset account, the less interest you must pay. For example, you owe $500,000 on your home and have $50,000 in your offset account attached to your home loan. You will only pay interest on the difference, which is $450,000.
An added benefit of the offset account is that while it lowers your interest payments, it also acts as a savings account. You can access offset account money quickly. If an unforeseen circumstance happens, you have cash nearby.
5. Use a Split Home Loan
Interest rates have an extensive influence on how much you will pay for your home. While there is always some rate fluctuation over the life of a home loan, many borrowers are concerned that interest rates will jump and make their repayments difficult.
A split loan allows you to take advantage of both fixed and variable components giving you the best of both. So, if interest rates rise, you are secured by the fixed part of the loan. But if interest rates fall, you can capitalise on the lower rates using the variable side of things.
6. Bundle Your Loan
A simple way to get ahead and save is by bundling your home loan with other products from the same lender. Generally, a home loan, car loan and credit card together will save you money, cutting down on fees and keeping interest rates steady.
7. Consolidate Your Debts
If you have a great deal of debt in addition to your home loan, you may be able to save money and get ahead by consolidating (refinancing) your debts. Terms will vary, and there is a chance that consolidating could cost you more than it is worth. Often, the interest rates you pay on credit cards and personal loans are much higher than the rates on your home loan. Be sure to find out if you will face any penalties if you go this route.
Paying off your home loan early is an excellent way to get ahead and stay ahead. You are shielded from various financial disasters if you own your home outright. If you would like more information regarding your mortgage options or other financial advice, please contact Quantum Finance Australia. Our top-notch team of experts will help you find a way to the financial future you want.
**Please Note** The material provided in this post is for informational purposes. It is not binding financial advice and should not replace a consultation with financial professionals.