You may currently be looking at the possibility of refinancing your mortgage but I am pretty certain that this does not mean that you would like to be paying off your mortgage as long as you have breath in your body! You should therefore consider some strategies that will help you shave years of your mortgage.
Before we look at three very basic tips for paying of your mortgage earlier we just need to briefly look at what you are actually paying when you pay your mortgage. This fact is that, at the beginning of the loan only a tiny percentage of your payment actually goes to pay of the capital amount of the loan, the majority of what you pay goes to serve the interest on the debt. Paying off just a little bit more means that the next month you will be paying slightly less interest and repay slightly more of the capital amount. This may not seem like a big deal but if you can consistently do this at the beginning of a loan term the results can be nothing short of phenomenal. I suggest you download a ?Loan Amortisation Spreadsheet? from the internet to see what the potential impact of even small extra amounts at the beginning of a loan term can be.
So how do you work on getting repaying a bit more of the capital? Here are three basic suggestions:
- Set up fortnightly payments. Most people pay their mortgages on a monthly basis. If however, you set up fortnightly payments you will be adding one extra payment per year while just following your regular payment cycle.
- Round off repayment amounts. Paying even a tiny bit more can have a significant effect over the life of a mortgage. One way of doing this would be to always round of your payments a bit (e.g. $1367 becomes $1400). This may seem like a sacrifice at first but you?ll be surprised how quickly even these, seemingly small, amounts add up.
- Pay lump sums into your mortgage. Most mortgage lenders would allow you to add extra funds, in the form of a lump sum, to your mortgage. This is a great way of reducing your loan term if you ever unexpectedly come into some extra money. In my opinion it makes much more sense to do this rather than to simply take out a fixed deposit since the amount that you will save on interest will almost certainly exceed the possible interest you can earn on a deposit.
These are just some of the ways in which you can save a lot of money later by saving a little. Remember: ?Every little helps!?