For most people, the biggest debt and the biggest investment they make are one-and-the-same – their home loan. Find out here how to pay off your home loan faster and to gain greater control of your finances.
Your home loan repayment is probably one of your biggest debits in the monthly budget. It’s probably also one of your biggest investments. In fact, some economics advisers have observed that people who pay off their homes by the time they turn 30 usually become millionaires. By all accounts, these people don’t make more money than others do; they accomplish this by being focused and disciplined when paying off their loans. With this in mind, here are some tips on how to beef up your home loan repayment and how to get out of debt sooner.
Make extra repayments
If you’re serious about getting out from under the home loan repayment rock, the best way is to put every dime you can spare into it. If yours is a double-income home, try to put one entire salary into the mortgage repayment and live off the other salary (preferably the smaller one). There are disciplined couples out there who, every time they plan a big purchase such as new furniture or a holiday, take the money and put it on their home loan instead. Feel like buying a new car? Why not consider fixing the ‘junker’ in the driveway first and pay extra on your house. Sure, you may have a 30 year mortgage, but you don’t have to take that long to pay it off. You could be done with your mortgage repayments in half that time, then take 2 or 3 months of your regular mortgage repayments and buy an even nicer car with cash you have quickly saved.
When you make extra repayments, even if it’s just $5 now and then, you lower your principle balance. Your principle is the amount upon which all interest is figured. Every time you lower your principle, you not only pay less interest on it, you pay less interest on the interest – it has a cascading effect. Plus, while paying off your home loan, your property continues to grow in value with no further cost to you beyond maintenance.
Refinance to lock in a better deal
Current interest rates are still quite low, so this is a great time to refinance your home loan. You want to be sure when you negotiate with your lender, to remember the home loan tips addressed in other articles in this series. For now, just remember to ask for a professional package home loan since these often have the lowest interest rates out there, and usually come with a low interest/no fee credit card built in.
If at all possible, you should consider cutting up your credit card. If you use it heavily, you might just shoot yourself in the foot. Also, don’t be afraid to shop around for a loan. See if you can pit lenders against each other to obtain the best interest rate, and make sure there is no penalty for paying off your mortgage early. Another tip is to ensure that you aren’t paying a monthly commission to a mortgage broker, who should be willing to accept an up-front payment instead, saving you thousands in interest charges over the life of your home loan.
Take control of your finances
If you implement these two home loan tips – making extra repayments and refinancing – you’ll find yourself in better control of your money and personal finances in a much shorter period of time, and the bank will no longer determine whether or not you go on holiday. You will know how to budget and save (which is quite rare these days), and you’ll be more likely to pay cash for medium-sized purchases, allowing you to avoid credit card abuse and thus, help you towards having a credit rating worth envying!
