Unless you have won Lotto or come into some family inheritance to clear out the loan balance most of us seem to have to pay our mortgage for a while. These are not quick fixes however, every payment into the mortgage chisels away at the mammoth mountain of loan principal and the interest embedded into our mortgage.
The secret to paying off your loan sooner is to reducing the borrowed principal on your loan or mortgage as quickly as possible which intern reduces the amount of interest payable.
To view this in play or visually see your loan figures change follow this link to our Neomoney Calculators and look for the Extra Repayments Calculators, add in your loan amount, interest rate & in the Frequency drop-down simply pick the fortnightly repayment.
For example a loan of $500,000 with a 4.50% interest, the monthly repayment would be $2,533 on a 30-year term with a $412.034 total interest component. However, by just changing your monthly frequency to fortnightly payments should indictable reduce your total interest to $341,950 and the loan term to a 26-year term, which is a difference of $70,084 in saved interest.
Now if you paid into your loan an extra $50 per fortnight you will reduce your loan by a further 1.7 years. If you can afford more to contribute into your loan than that’s even better.
Now, that’s one little secret so let’s look at a few more.
Consolidate, Consolidate, Consolidate!
When buying property and you have heard this many times before, it’s Location, Location, Location… so therefore in finance, it’s Consolidate, Consolidate, Consolidate.
No matter your income amount, if you live beyond your means your finances will consistently run out, money falling between your fingers.
By consolidating the higher interest debts, i.e. credit cards, personal loans, etc. into one or two loans this would reduce your monthly interest expense and if you can manage to live on the same money as prior, the additional money saved at the end of the week, fortnight or month can go onto your mortgage. Need to know more on consolidation, follow this link to our consolidation loans page.
You need to track the money falling through your figures… that’s right, money is falling between your fingers and you don’t have any idea where it’s all gone.
These days you should be able to find a mobile phone App to track what you are spending from day to day. Understand the difference between what you NEED and what you WANT which Need’s & Wants are another discussion for another day. Try to spend on what you need and reduce the spending on your wants.
Do you really want that extra packet of Tim Tams?
If you can save $50 per week that’s $200 per month which credited into your loan reduces the term by 4.2 years. Or $200 per fortnight credited into your loan is a 7.8 years term reduction and a saving of $119,800 in saved interest.
Set the Milestones
If you ever travelled long distances you tend to look out for the milestone or kilometre markers as they are known now, therefore set some goals to work towards. If you manage to save $1,000’s treat yourself to an ice-cream or whatever inexpensive treat you can think of and if you found a way to save thousands then treat yourself to a small holiday or a personal item to remind yourself with the end goal in mind of owning your property outright as a way of treating yourself long term.
Keep an Eye on the Bootee
Sometimes you may want a so-called ‘Set & Forget Loan’ however if you want to pay down your loan quickly you need to set up an internet access to view the balance of your loan on a regular basis because once you actively made a conscious decision to pay your loan regular and see the internet payment minimise you are more motivated to work harder to pay down your loan.
Talk to a Credit Adviser
If you haven’t spoken to your credit adviser for a few years, you need to do so to talk about your loan facility either to switch products or switch to another lender by refinancing your loan to a lower interest rate.
Your Credit adviser can run a few scenarios for you as to any savings on repayments if you decide to refinance. No point in refinancing your loan if you’re not making any long term savings so talk to a credit advise today, you might be surprised how easy it all might be.