Six Steps to becoming mortgage-free – Step 3: Pay more to pay it off early

Do you wonder what it must be like for people who don’t have to worry about their household budget? How much different would your life be if you didn’t have that mortgage payment coming out every fortnight?
What if there was a way to pay your loan off sooner so that you can start enjoying the finer things in life?

Well, there are six steps you can take today, which will make an enormous difference to the time that it takes to pay your loan off.

You could be holding that title in your hand sooner than you think.

In the past weeks, we looked at Step 1: choosing the best loan, and Step 2: changing your repayment frequency. These are both excellent ways to reduce both the length of your loan, and the total amount that you pay over the life of your mortgage.

Today, we will discuss how a few small changes to your budget can make a huge difference to the time it takes you to achieve your financial goals.

Step 3: Pay more to pay it off early

It might seem strange, but in the first few years of your home loan, you usually just pay off interest, barely touching the amount that you borrowed in the first place. This means that the interest on your loan won’t start to reduce for quite some time if you only make the minimum repayments.

If you can tweak your budget to pay just a little bit more each month, or each fortnight, you might be surprised at what a difference it can make.

For example, on a loan of $400k:

By paying an extra $50 each month, you could save around $36k on your total interest, and pay your loan off 1 year and 9 months sooner than expected.

Do you buy a takeaway coffee every day on the way to work? By saving $4 per day, and paying the savings off your loan now, you could save about $55k on your total interest, and pay your loan off about 2 years and 8 months early.

Try making a list of all the small things you spend money on daily or weekly, and see if there is anything you could happily do without. Just for fun, grab a calculator and multiply the item by 52 weeks, and then 25 to 30 years. You might be surprised what you find!

Want to pay your mortgage off sooner? Stay tuned for Step 4: the power of Offset Accounts and Redraw Facilities.

Six Steps to becoming mortgage-free – Step 2: Change your frequency…

Do you wish there was a way to own your home sooner – without a mortgage? Do you often wonder what it would be like to worry less about your repayments, and more about planning your next holiday?

What if there was a way to reduce the length of your loan, without making huge financial sacrifices?

Well, the good news is that there are six steps you can implement today that will make a huge difference to the time it takes you to pay off your loan.

Last week we discussed the importance of shopping around to make sure you have the best loan in the first place. A small saving now could translate to enormous financial and time savings over the life of your loan.

Today there is another simple step that can really make a difference to the amount of interest you pay on your loan. And it’s as simple as changing the channel on your TV. (Well, almost!)

Change your repayment frequency.

Lenders calculate the interest on your loan daily. So even though your repayments might be made on a monthly basis, your interest is accruing all the time – even while you sleep.

By changing your repayments to come out fortnightly, you’ll pay your loan off faster. You will also reduce the total amount that you pay on your loan.

This could mean reaching your financial goals a little sooner, and having more money in your pocket at the end of the day.

Stay tuned for your next step to becoming mortgage free!

We all dream of becoming mortgage-free forever.

Paying off that loan sooner so that you can enjoy your twilight years without shopping around for the best deal on tinned spaghetti.

This dream can seem a bit out of reach for those already on a tight budget, but don’t worry – there are Six Steps that will shave years off your loan at the other end, and have you sipping cocktails on a cruise ship in no time.

Today we will focus on the first step: Choose the right loan in the first place.

There are many home loan choices out there, and it can all seem very overwhelming if you’re about to purchase a property. It might be tempting to keep all of your banking in the same place for simplicity. Many borrowers apply with their current bank, just to get it over and done with.

But the right choice of loan can make all the difference in the long term.

Don’t assume your current bank branch has your best interests at heart, the more interest you pay the more profitable they are.

When some clients of mine and I reviewed their mortgage, we found that they were paying a far higher interest rate than what many lenders were offering to new clients. They refinanced with a new lender to save around 1% on their variable interest rate.

This might not sound like a huge figure, but on their loan of $400k, Liz and John were able to shave $98,529 and five years off their mortgage.

It’s important to shop around for a competitive interest rate, but also consider what sort of loan is best suited to your individual needs.

If you plan to make lump-sum repayments to try and get the loan paid off sooner, you might like to consider a variable rate loan, which usually allows you to make extra repayments, and then redraw that money if necessary.

If you want the security of set repayment amounts, a fixed-rate loan could be your best option.

By taking the time to compare home loan products, you can achieve your financial goals sooner than you thought.

Stay tuned for your next step to becoming mortgage free!

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