Strategies for Paying Off Your Mortgage Faster

First of all, before obtaining your loan, you should consider your combined incomes and expenses, and decide what you can afford to borrow. Then add this to the deposit you have and look at the properties you are considering. You should be realistic. Maybe you should consider buying a unit instead of a house.

Once you have decided what you can borrow, you should search through various lenders. Mortgage brokers can provide you with a range of options, and advice on whether to choose a fixed rate, variable or combination of the two. It is recommended to get a loan which allows you to make extra payments and to pay off the loan early without financial penalty. For more information on lenders go to http://www.creditworld.com.au/home-loans.html.

To pay off the loan faster you need to pay above the minimum monthly payment, and pay fortnightly to get those extra payments in. Take advantage of relatively low interest rates, and pay off that interest rate before rate rises begin to bite. And if rates fall, keep paying as much as you can.

To work out your payments you should do a budget plan, preferably on computer. Some software packages cater especially for this. Put all your income and expenses down. Look objectively at your expenses and see if there is anything you can cut back on. There usually is. But remember you are entitled to leisure, holidays and entertainment. But maybe you should buy a used car rather than a new. And for the first few years, when you are mainly paying off interest on your loan, perhaps domestic travel is a better option than expensive overseas trips.

To monitor how your loan is progressing, a spreadsheet can really help. This can easily be done through Microsoft Excel or similar programs. Here you can enter all the details about your loan such as the amount, current interest rate, the payments you are making and how these will reduce the interest and capital you have to pay. You can set up formulas to calculate how long, given your current interest rate and monthly or fortnightly payments, it will take to pay off the loan. Then you can experiment by putting in different payments to see what effect this has.  Some lenders and mortgage brokers can show you how to do this, or you can ask your financial advisor. You should enter in any other expenses associated with your loan such as legal fees, stamp duty, and mortgage insurance.

If you have a mortgage with an offset or line of credit facility you need to consider the tax implications of this as well as of the loan in general. Where possible you should use your mortgage to legally minimise the tax you pay. Your accountant can assist you in declaring for the maximum tax rebates from your loan and all other expenses.

Summary

• Find the right loan for you – ask your mortgage broker.
• Make extra payments above the minimum monthly payment.
• Do a budget plan and loan progress spreadsheet.
• Ask your accountant for help in using your loan to legally minimise your tax.

Article correct at its author date: Jan 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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