Five ways to hack your mortgage and put money back into your own pocket
Big mortgages are daunting. Many Kiwis pay almost as much in interest than the entire value of their home. The faster you can say “goodbye, mortgage”, the less your bank will make out of you and the more money will stay in your pocket.
Try these clever hacks to cut the amount the bank makes off your mortgage. Better to keep that dosh in your back pocket than pay it to the bank.
Hack 1 Make fortnightly payments
If you cut the amount you pay monthly in half and pay this amount fortnightly, you’ll make the equivalent of a month’s extra payments a year. This is a great way to fool yourself into overpaying your mortgage and cutting the balance faster. Every single payment adds up. The interest saved on the average mortgage over its life will be more than $30,000.
Hack 2 Reduce the loan term
The most common mortgage terms are 25 or 30 years. But there’s no reason why you can’t have an 8 year mortgage or an 18 year one. By reducing the term and/or paying more each month you’ll pay significantly less interest in the long run. Over 20 years instead of 30 you’ll save more than $100,000 in total on the average mortgage. That’s a huge amount of savings.
Hack 3 Increase your repayments
Now that you’ve conjured money from what you thought was nothing by knowing your needs from your wants you can pump that cash straight into your mortgage. As well as making the savings above, increase your loan repayments by a small amount every time you get a pay rise and pay your bonus and any other windfalls straight into your mortgage. You’ll earn the equivalent of the mortgage interest rate on your payments rather than the pitiful interest on offer for bog standard current and savings accounts. The great thing is by overpaying your mortgage you’re building up a buffer of overpayments that you can call on should an emergency arise. But do visit a mortgage broker and make sure that there are no penalties for overpaying.
Hack 4 Sign up for revolving credit
In the right hands, a revolving credit mortgage is a powerful tool. In simple language revolving credit is a huge overdraft. Each month it reduces temporarily when your pay is credited to the account, which means you pay less interest for that part of the month. Your monthly mortgage repayments also reduce the outstanding capital. The numbers can be astonishing. On a typical Kiwi loan just over $300,000 at 2016 interest rates you can save around $70,000* by offsetting providing you’re organised and don’t dip into your equity. Your bank or mortgage broker may be able to split your mortgage into a mix of fixed and floating or revolving credit.
Hack 5 Slash your spending and credit that money to your mortgage
Eat less (it’s good for you), stop collecting stuff and start selling, cut down on coffee, drink tap water, don’t buy takeaways, bring lunch from home, make your own greeting cards, put your children on a budget, repair clothes and shoes, haggle with your utility suppliers, turn the heated towel rail off, shop with a list and stick to it, buy second-hand, and so on, and so on, and so on. Most people think they can’t live within their means. With a bit of creativity, however you can probably find hundreds of dollars a month that can be used to slash your mortgage.
The more changes you can make to the way you pay your mortgage, the more you will save. It really is worth taking the time to look for ways to reduce your mortgage term and pay more.
*On a typical Kiwi loan of $304,111.98 at 5.64% over 20 years, six days and nine months. Offsetting of $41,199.28.
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