Once you’ve bought a property, whether as a first home buyer or an investor, you’ll be required to make mortgage repayments to cover the cost of the home loan. The key to meeting your mortgage repayments is to be smart and organised. Below the team at Auckland mortgage company Mortgage Masters offer tips on paying your loan off as efficiently as possible.
Make Additional Repayments
By checking terms of your home loan Auckland homeowners can determine whether they can make extra payments and if there are fees for doing so. By making larger repayments than are required, you will reduce the principal and interest component of the loan (unless you have an interest-only loan). You can do this on a regular basis or pay a lump sum whenever you can afford to. Either way, it will reduce the overall cost and time it takes to pay off your property.
For example, if you had a $500 000 loan over 30 years at an interest rate of 5%, the standard monthly repayment would be $2684. If you paid an extra $500 to this amount every month, you’d shorten the loan term by 9 years and save $152 000 in interest over the life of the loan. Keep in mind you may not be able to make extra payments on home loans with fixed rates.
Pay Off the Principal Early
Mortgage repayments can also be interest-only (generally used by investors) or principal and interest, which establishes a set amount to pay off the loan within a specific period. When you begin paying back a mortgage, most of the loan repayment is servicing the interest while the remainder pays off the principal.
Making extra repayments helps you pay off the principal faster, shortening the duration and amount you’re paying on the interest. For example, a single payment of $15 000 on a $500 000 mortgage with a 5% interest rate will save $45 000 and shorten the loan term by two years.
Split Interest Rates
How the mortgage is structured affects the options you have when it comes to repaying it. Mortgages with variable interest rates typically provide more flexibility in contributing extra repayments but mean you may have to pay more interest with the OCR rises.
Many homeowners prefer the security of regular payments under a fixed rate loan, which they agree to pay regardless of what happens to interest rates. There is a third option of splitting your loan, meaning you fix a portion of it while the remainder is left variable. This allows you to take advantage of both options while managing the overall risk. If you have a business mortgage, consult a commercial mortgage broker to see what refinancing options you have.
Mortgage Reduction System
Property owners can also use software, known as mortgage reduction systems, to help pay off their mortgage faster. This technology involves automatically analysing and identifying areas where you can improve your finances. It provides personalised tips for reducing expenses and making additional contributions to help pay off debts like a mortgage sooner.
Refinancing
Refinancing your mortgage involves securing better conditions for a home loan Auckland-wide. It involves your new lender replacing your current home loan with a new one, giving you a reduced interest rate or other features to help you pay it off faster. For example, a $500 000 home loan with an interest rate reduction of just 1% can save you $100 000 over 30 years.
Contact Our Auckland Mortgage Company Today
Whether you’re an owner occupier or are after an experienced commercial mortgage broker, the experienced team at Mortgage Masters can help. Contact us today for a free consultation to explore how you can pay off your mortgage sooner.
