So you have a mortgage and would like to pay it off as soon possible. Here are some of our tips to get you started on the journey of debt-free-ness
Understand the difference between the minimum repayments, your actual repayments and the interest cost
Many people seem to confuse the repayment amount to the actual interest cost of a loan. While for some people, this may seem quite straight forward, understanding this concept is the first step towards paying off your debts.
Your repayment is how much money you are giving to the bank, however not all of this money goes towards paying off your loan, most of it actually goes towards paying off the interest on the loan.
It is also important to understand the difference between the minimum repayments and your actual repayments. Sometimes people confuse the two because they are either used to paying the minimum or they believe what they pay is the minimum. The minimum payment refers to how much you need to pay for the month to keep the bank off your back. This can be useful to know in the event cash flow is tight, it may be possible to reduce the repayments for a temporarily to get things such as credit cards or personal loans under control.
Did you know?
If you only make the minimum repayments on a $350,000 loan at 4.5% interest, you will end up paying $240,000 in interest costs!
Pay more than the minimum
This may seem quite simple and self-explanatory but it is surprising how many times we have seen people only make minimum repayments. Every dollar that above the minimum goes directly towards paying what you owe the bank.
If we use the same example above, by making an additional repayment of just $10 a week, you could pay off the loan 12 months earlier!
Set yourself realistic goals
Many people increase their repayments temporarily only to fall back into their old habit of repaying the minimum. When increasing the repayments to pay off a big loan, being able to do it consistently is paramount.
If we compare someone paying off an extra $5,000 in the first year, with someone who pays an extra $10 a week until the loan is paid off, who do you think would pay off the loan faster?
You guessed it! The one who pays $10 extra consistently
Get yourself a good mortgage broker
Unless you have a lot of time to spare and are really good at haggling, having a good mortgage broker is a must. Mortgage brokers know which banks are offering the best deals and know exactly what they are looking for.
If you do not have a mortgage broker, let us know and we would be happy to put you in contact with one of the many great brokers we work with!