Taking on a mortgage is a massive decision, for many of us, the biggest financial decision we’ll ever make. However, it is a step in the direction of owning a slice of New Zealand and having an appreciating asset in our back pocket.
Due to home loans generally lasting between 25 to 30 years, it is a debt that will be with us for the majority of our lives. But that does not mean we can’t take steps to pay it off earlier than is stated in the contract. Below we outline eight tips that can help you become mortgage-free sooner than you may have expected.
However, it is important to note, that home loans vary between lenders and the conditions around paying a mortgage off early will differ for everyone. So before implementing any of these steps, make sure you speak to your lender or a Mortgage Supply Co. adviser to understand exactly what is allowed.
Extra repayments
If your home loan allows making additional repayments, outside of your regular ones, this is a great way to reduce your principal. Whether you make ad-hoc or regularly top up your repayments, the long-term savings in time and money are fairly substantial.
So next time you receive a bonus, a larger than expected tax return or come into a large windfall, consider putting that towards your mortgage.
Keep your repayments the same
When interest rates begin to drop, the temptation to drop your repayments can be fairly strong. However, we recommend resisting that urge and keeping your repayments at their current level.
While you will not benefit from the extra cash in hand during the periods of lower interest rates, the benefits of keeping your repayments the same could mean you become mortgage-free a lot sooner.
Change how often you pay
Take a look at your current repayments, how often are you paying? If you are paying on a monthly basis, investigate if you are able to change that to fortnightly repayments.
By doing this, you will be essentially contributing an extra month of repayments each year. When you factor that into the life of your mortgage, switching to fortnightly repayments is a no-brainer.
Home loan portability
The simple fact is, most people will not stay in their first house for the life of their loan. And why would you, our situations change and thus our living requires change as well. See if your home loan offers loan portability, meaning you are able to switch your loan to a new house. If you have this, it will mean you don’t have to pay an exit or establishment fee when shifting to a new house.
Shop around
The home loan options available are almost endless. That is why, it’s essential you take your time, do your due diligence and shop around. Don’t just settle for the first option you find.
Home loans are usually five-year contracts, so picking the wrong loan structure could have a huge impact on your financial health for the foreseeable future.
Not sure what to look for? Get in touch today and our friendly team will help find the home loan that is right for you.
Pay fees and charges upfront
One aspect that is often overlooked, is the numerous fees and charges associated with taking on a mortgage. These additional charges range from establishment fees, legal fees and mortgage insurance.
Chances are you will have the option to bundle all of these together and add them onto your mortgage. However, if you are in the position to, try to pay these fees upfront. By doing this, you will save thousands in interest.
Pay on settlement day
A great way to instantly knock off a decent chunk of your mortgage and reduce the amount you pay in interest is to make your first repayment on settlement day. Your first repayment will be due one month after taking ownership of a house, this is when you start accruing interest, however you can get around that by making that first repayment before your loan can even start accruing interest.
Find out everything you need to know about settlement day here.
Review regularly
The key to managing your mortgage and ensuring it is working for you, not holding you back, is to regularly review your contract. This will help you analyse whether or not the effectiveness of your repayments and if there is any waste.
Staying on top of your mortgage on a fortnightly or monthly basis will keep you in a good position to make a change if something isn’t working.
Cut back on your vice
Lastly, the simplest way to become mortgage-free faster is to cut back on all those guilty pleasures and redirect what you would have spent into your mortgage.
Whether it’s that $4 coffee each morning, take-away a few nights a week or yearly overseas trip, think about reigning it in for the foreseeable future. We’re not saying don't treat yourself, but cutting back, could cut years off your loan.
If you have any questions about your current loan or would like to shop around, do not hesitate to get in touch. Our friendly and experienced advisers will do everything we can to help you become mortgage-free faster.