PAY YOUR MORTGAGE OFF FASTER
The word Mortgage is actually a combination of two French words: Mort which means “death”, and Gage which means “pledge”. So in effect, a mortgage is a “death-pledge”. The banks will generally structure a home loan for a 25 or 30 year term. This allows them to maximise the interest payments they will receive from you. But it need not be this way.
Reducing the term, and the amount of interest you will pay over the life of your mortgage, is quite a straightforward process. By applying a few basic strategies, you can pay off your home loan in half the agreed time or less, without making any additional repayments over and above those normally required. How is this possible?
The key principle of Mortgage Reduction is that “Interest is calculated on the daily balance”. Therefore, the day-to-day balance of the mortgage account has a significant impact on the interest charged to the loan, and therefore the term of the loan.
There are four basic methods you can employ for Mortgage Reduction. You can use only one of these, or you can use a combination of several of these for maximum benefit. The first two do not require you to pay anymore than your standard repayment, and yet you can halve your loan period. If you don’t use either method 1 or 2, then the third requires only a fractionally higher repayment, which you will hardly notice, and yet it will likely shave 6 years and $10’s of thousands in interest off your home loan.
The 4 methods are:
1. Use a 100 percent Offset Account
2. Use a Home Equity Loan/Line of Credit
3. Make Weekly or Fortnightly repayments instead of monthly
4. Make extra payments when possible (i.e. tax return cheque / Christmas bonus)
The basis behind methods 1 and 2 is to restructure the funding of your property in order to minimise the interest which is charged to your loan.