How To Pay Off Your Mortgage Early And Become Debt Free The Easy Way

keysSo you’ve recently purchased your first property. You’d spent the past few years saving up a substantial deposit, had your mortgage application approved and found your perfect pad. It’s daunting when you pick up the keys, open up the door to your very own building of bricks and mortar and realise that you own this little patch of land. It’s all yours; every brick, every window, every blade of grass in the garden. But house buying is not without its stresses. You now have the largest loan you will ever take out in your life, and you are set to repay it over twenty, twenty-five or maybe even thirty years. That’s a long time to have such a hefty debt hanging over your head. Why not consider paying it off quicker by following these easy steps?

Look At What You Can Afford To Pay

Most mortgage lenders set a standard twenty-five-year term over which you repay back the capital of your loan as well as the interest. It is the interest that is the real killer as you could end up paying almost double the amount you actually borrowed back to the bank if you stick to this twenty-five-year term.

What many people don’t realise is that they can elect to make overpayments. The most effective way of doing this is by setting aside a certain amount extra each month to pay back. A good rule of thumb is to aim to pay back no more than an extra 10% of the outstanding loan back each year otherwise you may run the risk of paying charges or fees and this defeats the entire purpose of shifting your mortgage quicker.

Make sure you have a clear budget of affordability. Paying off your mortgage quicker shouldn’t impact your current quality of life. You should still be able to go out for a lovely meal, socialise with friends and go on holidays. Only pay back what you can afford. By making a payment of 10% extra each month, you could see yourself mortgage free in half the time of the original term of your mortgage. Another alternative, suggested by finance blogger Michael Banks, is to invest the extra money that you would plan to put towards your mortgage. Once this investment has reached the level required to pay off the outstanding balance, you can cash in on your investment and make one massive final payment.

Think About Raising Extra Cash

You would be surprised how easy it is to find extra cash. This doesn’t mean rummaging under the cushions of the couch, but it does mean examining the items that you own and working out whether you actually need them. How many old mobile phones and MP3 players do you have taking up valuable space in drawers? If you have a luxury Italian coffee maker taking up space in one of your kitchen cupboards and you haven’t used it in twelve months, list it on eBay. Use the proceeds towards your mortgage, again cutting down that all important mortgage term. Any money such as an inheritance or gifts that you find yourself receiving can also be put towards your mortgage.

Look at Different Type Of Mortgages

There are many different home loan and mortgage types on the market. One of the most intuitive mortgages of recent years that has enabled many people to pay off the debt early is the offset mortgage. It is a clever little way for banks and lenders to ensure that you use them for more than one service. If you are an avid saver and have a significant amount of savings to your name, you can endeavour to place these savings in an account with the same institution as your mortgage lender. Instead of simply withdrawing them and paying off a chunk of your mortgage, you can make these savings work for you in an entirely different way.

Say you have a mortgage of $300,000 and savings of $100,000. You can take away the $100,000 from your mortgage leaving you to pay the interest on just $200,000. Why do lenders let you do this? It’s not as clear cut as it seems as you won’t be earning any interest on your savings for the term of your mortgage. However, this is more than counterbalanced by the fact that you won’t be paying interest on such a huge chunk of your mortgage and should life circumstances change, or things go a little bit pear-shaped, you will still have your savings nest egg to fall back on. Offset mortgages are, without a doubt, underused. If you are a saver, consider this option carefully.

When Might Clearing Your Mortgage Early Not Be A Good Idea?

Your mortgage will, undoubtedly, be the largest debt you ever undertake. However, it is also the most stable and manageable debt where you understand your repayments and have a wonderful home because of it. There are some circumstances where it would be unwise to make shifting your mortgage early a priority. If you have other debts such as car finance, credit cards or store cards, it is vital that you pay these off before even looking at your mortgage. The rate of interest on these debts is much higher than your mortgage so if you can make larger payments to your credit cards, make this your number one priority. Your credit rating will increase, and your short term debt will decrease.

The fact that you are keen to pay your mortgage off early shows a certain amount of financial astuteness. With a mortgage paid off, your disposable income increases immeasurably increasing opportunities to spend your money on more worthwhile things. You may want to travel to different countries, purchase the sports car you’ve always wanted or even reinvest in the stock market. The freedom that being mortgage free brings enriches your quality of life. Take a look at all of your options, speak to your mortgage lender and then start chipping away at the mortgage debt. It could be the best decision you’ve ever made.

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