You might have a bigger house and a nicer car, but are you now stuck with having a mortgage until you are retired?
It’s an easy trap to fall into, if you’re 40 years old and have recently purchased a new home, you likely now have a 25- or 30-year mortgage term attached to your house. Unless something changes, that’s a mortgage you’re still going to have at retirement!
If this is you, you are definitely not the exception to the rule, but actually one of the majorities. People slip into this trap as many work their budget or finances on a month-to-month basis, and infrequently, if ever, look at the long-term picture.
If you did look at the big picture, you would see only minor changes need to be made to reduce your loan term by 10 years. That is reducing a 30-year loan to 20 years, or a 25 year loan to 15 years. This can be achieved by merely having the correct loan structure, and making extra repayments of only $50 a week.
Any way you look at it, being out of debt for an extra 10 years should be a huge priority. So, before you buy the new car, or upgrade to the nicer home, spend a little bit of time on your finances and see if you can get the goods AND improve your financial position.
So how can you pay your mortgage off sooner?
Don’t fix your entire mortgage.
While there are some very tempting fixed rates at the moment, if you choose to fix your entire loan, you’re also locking in how fast (or slow in most cases) you can pay down your loan payments. The payments will be locked into a payment regime with interest making up to 90% of the total payment. You should always have a small part of your loan floating that you can pay it down faster.
Utilise your income. Offsetting interest with your income should be a no-brainer. It’s simply using your income to reduce your loan balance until you need to spend it. You will have a mortgage for decades and this simple act will save you thousands of dollars in interest.
Get rid of other debt. You want to be focused with your debt – having only mortgage debt will help minimise interest costs and be easier to manage. By consolidating debt, you’ll free up money which, if put into your mortgage, will give you the ability to pay it down quicker.
Pay more than the minimum monthly repayments. Paying only the minimum repayments is never in your benefit as it means you will be trapped in a 25-30 year loan term which will come at a very high cost. Even increasing your repayments by $5 a week could save you $20,000 over the life of your mortgage.
If you want to know more about how you can avoid having mortgage debt at retirement, get in touch with our expert mortgage team today!