The word ‘Mortgage’ is a concatenation of two French words ‘Mort’ and ‘Gage’ meaning - ‘death’ and ‘pledge’. So mortgage means ‘death-pledge’. If you stick to the repayment schedule that your lenders determine for you, then you will repay your mortgage in 25 or 30 years…That is a long time - this is actually when your mortgage becomes a ‘death pledge’.

From the day you take a mortgage your aim has to be to repay it as quickly as possible. Here are some tips that can fast track your repayments (tips to make sure that a mortgage is not a ‘death-pledge’):

1. Make The Honeymoon Period Work For You

A lot of loans come with a honeymoon period of 1 year. During this year, your interest rate is at least one per cent lower than the usual interest rates. Make use of this discounted rate. Make extra repayments during this period. Your furniture purchases and your other plans of decorating your new home can wait a year.

2. Make Extra LumpSum Repayments

Any extra money you have, put that in your mortgage account. Don’t worry about how small or big this extra repayment is. Anything and everything counts.

These extra repayments especially make a lot of sense in the initial 5 to 6 years of your mortgage. In the initial years, a lot of your regular repayment goes towards interest repayment (because in those years your principal owed is so huge). Any extra repayment you make, goes directly towards reducing your principal and thus 5
Having said that, if you missed out on those early years - it is never too late to start.

On a $300,000 loan with a initial 30 year loan term period, if you make a $100 extra repayment starting from your 5th year, your loan term reduces to 27 years. If you make the same start extra repayments from your first year, the loan term reduces to 24 years.

3. One Extra Repayment

Most people make monthly repayments. There are 12 months in a year but there are 26 fortnights in a year. So make your payments every fortnight and you will be making an extra month’s repayment - A very painless method of making extra repayments. If your lender has the option for weekly payments then opt for weekly repayments.

4. Use An Offset Account

Most lenders offer these types of accounts - Basically all your money (your salary, your spouse’s salary etc) sits in this account. This account also has your mortgage. So every dollar in the account is working towards reducing the interest owed on your mortgage. Maintaining this account requires enormous discipline - not very easy. I have a line of credit account. I will write more about it in length in a different post (pros and cons).

5. Extra Fees

If your lender is charging you any monthly fees on the loan account, try talking to them and get those fees waived. Usually if you have all your accounts with one bank then you will qualify for such waivers.

6. Switch

This should only be used if you are absolutely positive (after research and comparisons) that you will get a better rate if you switch lenders. The switch will cost you money, so don’t decide on this hastily.

Related Posts:

• What You Need To Know About Lenders Mortgage Insurance
  If a borrower defaults on mortgage repayments, the lender will take over the property and auction it. Assume now that the proceeds from the...
• How To Get Your Broker Put Some Money Back Into Your Mortgage?
  It might sound too good to be true but the fact is it is true. Some mortgage brokers pay you a small amount of...
• How To Make Debt Consolidation Work For You?
  Debt Consolidation is the process of combining multiple high interest debts into one loan. A lot of people end up with multiple credit card...
• Current Mortgage Interest Rates
  The official interest rate is currently at a 12 year high of 7.25 per cent. Usually whenever RBA rises official interest rates, banks follow...

Topics: Property |

Comments

Name (required)

Mail (will not be published) (required)

Website

« What Is Dollar Cost Averaging? | Home | Watch Lists - Starting Point For ShareMarket Investing »