10 Practical ways to stay ahead in Mortgage Repayments
If you have purchased a property in Brisbane, whether home or for an investment purpose, you will have to make the mortgage repayments to cover the amount of your home loan. These repayments can be either interest-only (what investors usually use) or principal and interest – a set amount planned to pay back the home loan within a particular period – generally 25 or 30 years. Also, the repayments can be either through a variable interest rate or an interest rate that is fixed for a particular period. In today’s market, a variety of housing finance loans are available, and different lenders are competing against each other in Brisbane. So, it’s essential for you to do comprehensive research before you select a way that suits your financial circumstances perfectly. Here is a list of some practical ideas that can help you achieve investment goals and stay one step ahead in your Mortgage Repayments.
Clear Your PPOR and Use the Equity
For most of the homeowners in Brisbane, the goal is to pay back the home loan as fast as possible so they can save on the payable interest amount. But they don’t know the best way to do that. To execute this strategy flawlessly, you should pay on every fortnight or month, more than it is required.
For instance, if your loan repayments are $3,000, you must pay $3,200 or even more (if possible). Also try your level best to make lump-sum payments, maybe from a cash bonus or tax return.
By paying back the loan faster, the equity in your property will increase quicker than what renovations or capital growth can achieve. By increasing the equity, you may be able to use these funds to purchase an investment property in Brisbane. And this move can provide significant tax deductions.
Make Repayments Regularly
Another great way to pay back the loan of your principal place of residence (PPoR) faster is by increasing the frequency of loan repayments. Most of the home loan is based on a monthly repayment schedule, which makes it 12 repayments annually. Switching to a fortnightly repayment schedule can be an ideal option, as it will make 26 repayments in a year. This strategy works well for people who get salaries on a fortnightly basis.
If your repayments are $2,000, then you will pay back $24,000 (not calculating interest) after a year. But if you change the amount to even $1,000 for a fortnight, the amount will be $26,000 after one year. This is because there are 12 months in a year but 26 fortnights! You can easily take out an extra month every year. And in the long term, this strategy can save a couple of years (depends on time to repay the mortgage).
Make Bigger Repayments
Another great property investment lesson and great option to stay ahead in mortgage repayments. You need to make bigger repayments than what is required (every fortnight or month). By paying back some extra amount, either on a regular basis or when you have some additional amount in hand, you will decrease the principal and interest amount of the loan. Thus, it will also reduce the total duration to pay off your property loan.
Let’s understand the strategy with the help of an example. If Steve and his wife Linda have a loan worth $500,000 over a period of 30 years at an interest rate of 5%, then $2,684 would be the monthly repayment. Now, if they can manage to top up this sum with an extra $500 every month, they will not only save a massive $152,000 in interest but also nine years off their total loan term.
Payback the Principal Amount Early
When the mortgage is drawn down for the first time, your repayments are expected to be at its highest level. If you only take care of the minimum repayments for the early years, it may look like you are not paying back at all. The reason is, the interest of the loan is the major part of the repayment so what you are repaying is only a small proportion of the principal amount. So experts believe you should try to pay back the principal amount as early as possible. And you can do this by making lump sum repayments in the initial phase of the mortgage.
Steve and Linda again have a total $500,000 home loan in Brisbane over a period of 30 years at an interest rate of 5%. After the first 12 months, Steve receives an amount of $15,000 and instead of spending it on a holiday or shopping; they decide to pay back some loan amount. This one additional repayment will reduce their interest bill by $45,000 and save almost two years from the entire loan duration! It’s essential to understand that any amount can be used to make additional repayments. So, always go for loans that let you repay your balance faster without any penalty.
Today in Brisbane, Queensland, there are a many home loan and mortgage providers are competing against each other, but not all of them are reliable and provide equal interest rate. The number of smaller lenders has also increased in the market, and they are trying to secure the market share in the home loan area. As a matter of fact, data analysis has shown that one out of six borrowers selects bank with smaller lenders in comparison to some of the big names. Factors like discounts, competitive rates, and incentives offered have given them the advantage in the market. In the last couple of decades, the market has witnessed a rapid increase in the utility of mortgage brokers to assist the investors to get the best home loans. So, it’s crucial to do in-depth research regarding home loan so that you can take the right direction.
Utilise Split Interest Rates
When you are looking for the best repayment strategy keeping in mind your financial circumstances, it is important to recognise if you are a risk-averse person. If your mortgages have variable interest rates, then it means the interest on your home loan can vary depending on policy changes by the Reserve Bank of Australia or any changes in rate by the lender. It means the loan repayments can increase or decrease depending on the rise or fall of the interest rates. Many people Brisbane, Queensland, like to secure their regular repayments so select a fixed rate loan, say 5%, which they pay no matter what is the position of interest rates. If you are finding it difficult to select between fixed and variable interest rates, then you have the option to split your home loan. In this process, you can lock one portion while keeping the other part free. It means the portion you have is fixed will not get affected by any changes in the market. On the other hand, the variable portion will let you take advantage of different features such as an offset account.
If Olivia decides to split her home loan of $700,000 in a 60:40 ratio, then $400,000 would be fixed while $300,000 would be free for variable interest.