Extra Dollars Make a Difference to the Mortgage

Tips to Reduce the Home Mortgage Faster and Own the Property Sooner

Jul 15, 2009 Pauline Mascarenhas

Using extra money to reduce the home loan or employing refinancing strategies to increase mortgage payments can help to pay off the loan earlier and own the property.

All mortgage holders, whether for owner occupied homes or investment properties, should revisit their personal finances to ascertain if they are in a position to make additional payments to their home loans. Increasing the repayment amount by just a few dollars can reduce the term of the loan and save on interest.

There are various ways to achieve this.

Frequency of Mortgage Payments

If the current payment is made on a monthly basis, consider approaching the lender to ascertain if payments could be made fortnightly. The reason being that there are 12 calendar months and 26 fortnights in a year.

For example, if the home loan repayment is $1,000 per month, $12,000 will be paid in one year. However, by paying $500 per fortnight (monthly amount divided by two) $13,000 ($500 x 26) will be paid off in one year.

This is the easiest and the most painless way to make additional payments into a home mortgage.

More Money per Payment

Paying a little extra with each payment can also make quite a difference. It need not be a whole lot of dollars. For instance, if the fortnightly minimum payment due is $489.00, just rounding it up to $500 can make a sizable dent in the mortgage.

Many websites provide calculators that show the number of years and interest savings that can be achieved.

Making a Lump Sum Payment

There are many ways that an unexpected windfall can be spent but choosing to put the money into the mortgage can save thousands of dollars in future interest and reduce the term of the loan. An income tax refund, an annual bonus from an employer, extra commissions from sales or an inheritance are lump sum payments that could be used to pay off the home loan sooner.

Refinancing Strategies to Increase Mortgage Payments

An 'Offset" Account: This is a transaction or savings account that is attached to the mortgage account. The balance in the transaction or savings account is used to 'offset' the outstanding balance in the mortgage account when calculating the periodical interest. For example, if the mortgage account balance is $200,000 and the balance in the 'offset' account is $10,000 interest payable on the mortgage account will be calculated on $190,000.
A Line-of-Credit: This type of all-in-one facility saves interest on the loan by having all the borrower's income deposited directly into the loan account, which immediately reduces the loan balance. The loan account effectively becomes the borrower's main banking facility and access to the funds is by way of cheques and/or debit or credit cards.

Putting extra money into the home mortgage by using one or a combination of the above repayment or refinancing strategies will result in reducing the term of the mortgage and saving thousands of dollars in payable interest.

The copyright of the article Extra Dollars Make a Difference to the Mortgage in Mortgages/Loans is owned by Pauline Mascarenhas. Permission to republish Extra Dollars Make a Difference to the Mortgage in print or online must be granted by the author in writing.

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