At some stage in our lives most of us will experience the various highs and lows that go hand in hand with home ownership.
Undeniably today the biggest pressure associated with realising the dream of having a place to call our own, is keeping up with the mortgage repayments.
For those who buy their home with a decent deposit and have a smaller loan, it may not be quite as daunting.
But paying off this debt is often a priority; regardless of how much equity you have to start out with.
Trying to get ahead on your mortgage is a smart move, because the faster you reduce this debt, the less interest you will pay over the term of the loan.
And that means more money in your pocket, rather than your lender’s.
So let’s explore 3 ways you can potentially free yourself from mortgage debt faster…
1. Negotiate the best possible interest rate
Today’s buoyant market and low interest rate environment provides homeowners with the perfect opportunity to negotiate a better rate with your lender.
All the banks are aggressively competing to gain new business and retain existing clients.
But it’s not just the Big 4 you should look to when determining the best possible loan product and rate for your circumstances, with a few of the smaller players starting to vie harder for a bigger piece of the mortgage market pie.
If approaching your lender or potentially refinancing to another provider seems too hard, consider the difference a 1% variance in interest can make to a 25-year loan at $300,000.
If you were to pay 4.9%, as opposed to 5.9% for instance, you’d save $53,000 over the life of the loan.
Suddenly a chat with your lender looks a little more appealing doesn’t it?
Of course, interest rates will trend up and down according to the going market fundamentals of the day, but the bottom line is, the lower your rate, the less interest you pay.
2. Make more regular repayments
This can be as simple as changing your repayment schedule from monthly to fortnightly.
While you might think that doing so wouldn’t make much of a dint in your mortgage, it actually means you effectively make one extra monthly repayment each year.
Using the above example of a 25-year loan worth $300,000, at an interest rate of 4.9%, that represents a saving of $34,000 in interest and three and a half years worth of time paying back the bank!
Another option in line with this type of strategy is to make higher voluntary repayments.
In other words, when interest rates are dropping, you might consider maintaining your monthly repayments at the higher level you’re already comfortably managing.
We explored how many young homebuyers started taking advantage of falling rates way back in 2013, using this very approach to become debt free almost ten years sooner!
3. Establish your loan with a different set of rules
While the majority of new mortgages are taken over a 25 to 30 year term these days, it’s important to remember that you do have the option of asking your lender for a shorter contract, of perhaps 20 years.
Of course you must account for rate fluctuations when calculating whether or not you can comfortably meet your monthly repayment obligations without having to live on bread and water for months at a time, if you employ this strategy.
But for those with a larger deposit and a smaller loan commitment, it can be a great way to shave five to ten years off your mortgage and save a bucket load of interest!
For those borrowers who may be more risk averse when it comes to structural loan changes and commitments to your lender, such as fortnightly repayments or a smaller loan term, another good option might be an offset or redraw facility.
These will sit alongside and reduce your home loan (and therefore interest repayments) by whatever the offset account balance is at any give time.
Rather than going directly to the banks I suggest you work with a suitably experienced mortgage broker who can help guide you in the right direction.
Their services are at no cost to you, but you ‘ll find there’s at least 5 ways a mortgage broker can save you money in the long run.