Super Fitness Health BlogMortgage: Tips to Reducing or Eliminating Your Debt
If you are struggling paying off your mortgage, check out the following helpful tips:
1. Refinance to a lower interest rate.
If you plan to live in your home for 3 years or longer, and your home loan is $100,00 or beyond with an interest rate of 5% or higher, ask your loan issuer for the most favourable rate for refinancing. Compare such rate with rates from banks which you already have accounts with. Or you can choose work with an independent loan broker to find the best rate. Reducing your interest rate from .75%-1% for example can make a huge difference.
2. Refinance to shorten the time frame of your loan.
Refinancing, a 35-year, fixed rate loan to 20- to 15-year loan for example is becoming very popular. The low rates nowadays allow you to do so, while keeping your monthly repayment a bit close to the current amount. For instance, you have been making payments for a 30-year, 6 percent fixed rate loan of $200,000 for 5 years; if you refinance to a 15-year, 2.87% fixed rate mortgage, your monthly payment will only increase by $80 or less. And you could pay off the mortgage 10 years earlier, establish equity significantly faster, and save more than $100,000 in interest!
3. Make a lump-sum payment.
If you’ve received an inheritance, a tax refund, or received a relatively big amount of money in any way, consider using some or all of it to your principal balance. Making a lump-sum payment is one of the best ways to reduce debt, because you aren’t required to make a higher repayment every month. Making a one-time $5,000 payment on a 30-year, 4.5% fixed rate home loan of $225,000 for example, could save you over $13,000 in interest and reduce your payment term by 15 months. Talk to your home loan provider to verify if your mortgage doesn’t have pre-payment penalty. If your loan has such penalty, you could be charged with a fee, usually 1% of the home loan amount.
4. Round up your payment.
However little the amount — even if it’s only $15 every month — you pay for your principal, this small amount will help you save in interest. For example, you pay $900 each month, if you round it up to $1,000 by adding in $100, you will be able to pay off your home loan more than two years early. This is a good strategy to use if you have little additional cash, or if you’ve already refinanced your loan or you do not qualify for refinancing.
To get more advice on mortgage, credit cards, and other banking and financial matters, simply visit consumer credit legal service Western Australia by clicking on the link.
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