One of the best investments that you can ever make is paying off your mortgage early. After getting rid of your biggest debt in a short time, you will no longer be at the sea-saw property market’s mercy, and thus you can put the money that you’re not paying anymore on the mortgage to good use. Below are some of the guidelines to help you pay off your mortgage faster.
1. Miss out on the Honeymoon
Be cautious of lenders that come bearing gifts. For some good time, honeymoon rates, also known as introductory rates, have been used as a great marketing tool by lending institutions who wish to increase their sales. They initially offer you a cheap rate on the loan to get you in the door, but after the period of the honeymoon is over, the lending institution will change you to a higher variable interest rate. The two problems which are involved with this scenario include:
- The revised variable rate provided would be higher than the standard variable rate on basic loans.
- It should also be understood clearly that the honeymoon rate only applies to the 1st year or two years of the loan. This is a negligible consideration compared to the variable rate which is to determine the repayments that you will be making for the next twenty-to-thirty years.
2. The repayments should be made at a higher rate
Another great way of getting ahead of your mortgage commitments is by paying off your monthly dues as though you have got a higher interest rate. Obtain a loan at the lowest rate of interest you can find and add two or three points to your amount of repayment or BETTER YET, add an additional 20% to your regular mortgage payments without incurring any penalties.
3. Make more regular repayments
You can choose to make repayments biweekly instead of using the common monthly basis. When you split your monthly payments into two and make the payments accelerated biweekly, even though you may not feel the difference as regards to your disposable income, it will save thousands of dollars and save a big-years difference over the loan’s amortization. This is because a year contains 26 biweekly payment periods, but only 12 months. Making biweekly payments implies that there will be 13 monthly payments being made every year, therefore you are paying off more of the mortgage principle per year.
4. Strike the principal early
During your mortgage’s 1st years, it may appear that you’re only paying the interest and the principal is not reducing by any means. Regrettably, you are possibly right as this is one of the compound interest’s unfortunate effects. For that reason, you need to do everything possible to get part of the principal repaid near the beginning so that you are able to notice the difference.
Every dollar that is put into a mortgage above a repayment amount hits the capital. This means that down the road, that interest that you will be paying will be made on a lesser amount. Regular additional repayments will help out in cutting many years off your loan’s amortization.
5. Obtain a package
Have a word with your lender or mortgage broker about the various financial packages that they have available. Some of the common offers include fee-free credit cards, discounted home insurance and others. Whereas these items may seem small compared to what is being paid on the home loan, every tiny bit counts and hence the little savings can be used on some other financial services so that they are turned into big savings on a home loan.
6. Split your loan
Numerous borrowers are anxious about the rates of interest and whether they’ll rise up, yet they do not want to be tied down by a fixed-rate loan. A good alternative is to get a loan which is a combination of fixed and variable parts. This lets you hedge your stakes as to whether the rates of interest are going to rise and by what amount. In case the rates of interest rise, you will be secure with knowledge that a fraction of your loan is fixed safely. Conversely, in case the rates of interest do not rise, or even when they go up slowly or slightly, you can take advantage of the flexibility of your loan’s variable option and pay off that part more quickly.
7. Abstain from minor luxuries
This is the part which so many people do not want to read. The moment you encompass a mortgage, it is likely that your life will turn to being luxury free. For your health’s sake, consider drinking less and giving up on smoking. Avoid bad fast food by taking lunch from home because your body will need some good healthy food.
8. Make use of your equity
In case you’ve already paid-off some part of your home, then you’ve got equity. The difference between the current property’s value and the amount that one owes the lender is what is referred to as equity. There are various lenders that will let you borrow using your equity as the collateral up to 80% Loan to Value (LTV). A Home Equity Line of Credit can be also considered up to 65% LTV, so 65% of the homes total value. Large expenses such as holidays and cars which would’ve been paid using a credit card are more affordable on your home loan’s lower rate. If you’re careful, you may take advantage of this equity so as to pay-off your mortgage sooner. This could also help to increase your home’s value over time.
9. Change to a lender that offers a lower rate
Even though this sounds like a simple idea, changing from your present loan at the time of lower rates or upon renewal, and taking-out a new loan at a subordinate rate can signify a difference in years as well as thousands of dollars. In case you’ve got a loan which is tricked-up with all features, or even if you’ve got a standard variable loan, you may be able to obtain a no-frills rate which is a percentage point that’s cheaper than your present loan. Before attempting anything, first investigate how much that switching of loans will cost you with your mortgage broker running refinancing calculations to weigh out expenses over gains to ensure you come out of the refinance with a surplus rather than a deficit. For instance, your old loan may comprise of payable exit fees as well as stamp duty and establishment fees on the new loan. Look into it carefully and if it financially makes sense, go for it.
10. Use minimum down payment and leftover funds for making further investments
Whenever you are ready to purchase a new residence, consider putting down the lowest amount possible, and store any additional funds for a future investment property in Vancouver. When rates are also low, it’s safer to suggest that the inflation is low as well. As a result in that scenario, the best place to invest may not be the bricks and mortar. Instead endeavor to get the most low-payment loan you can stumble-on and complete the minimum repayment. Be conscious however as high returns often involve high risks. Ensure that you first consult your Vancouver mortgage broker and a qualified financial adviser before undertaking any investment.Read More »