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Can You Pay Your Home Loan Off Sooner?
Rob Best
Can you really pay your home loan off sooner, and are there any tricks to make it easier?
The short answer to both is yes. However, that doesn't mean it's easy to do or even that you should be doing it. Essentially you need to work out your objectives, what you want to achieve, what you are comfortable doing right now to achieve them and what you are unwilling to sacrifice. Then you can work from that as a base to achieve your goals.
There are really only two ways to pay off your home loan or mortgage sooner:
1. Make larger payments or lump sum payments
2. Reduce your interest rate by finding a cheaper one
Option 1 generally means more work or less lifestyle (or both).
Option 2 means putting the time in to compare rates, lenders, the hidden fees and doing the calculations yourself (if you're up to it). It would be nice if you could go to someone to do this for you, but most lenders have hidden agendas like commission, their own loan products and packages and other forms of graft that creates a minefield for the unwary.
So what to do?
Again we come back to: what do you want to achieve?
If you want to be debt free, then your options are limited:
- Consider downsizing your home and your loan.
- Focus on paying your mortgage and other loans down as quickly as you can without creating serious financial pain for your family.
- Take advantage of good interest rates and make progress on your loan when it's easier to do. If the rates rise you'll already be use to making extra payments and maybe have some safety margin built into your loan to draw back on.
- Eventually the rates will fall again, rather than drop your repayments and breath a sigh of relief, retain them at the higher level and start making serious headway on your loan.
- Paying a home loan or mortgage down is a long term project, so set goals, work together and reward yourselves when you achieve those goals.
- Consider moving out of your property into a rental and turning it into an investment that provides rental income and tax benefits.
- Loans can actually help you achieve this, so in essence you don't want to be debt free, you want to be property rich
- Don't over extend yourself; start slow, learn the ropes, grow your port folio at a manageable rate
- Seek expert advice
- Some countries reward property investment through negative gearing and tax breaks, use these to your advantage, get your tax back through negative gearing to fund your loans and in this way you retain your lifestyle and achieve an increased asset base
- Use one propety to buy the next (if you stick with it, it's amazing how quickly this can grow)
- Put the hard yards in early, get a second job if you need to. Put a few years into your property and watch it grow. Property is one of those things that will always be worth something long term, and as long as you dont over commit, you will be in very good shape
- Don't focus on the short term, property goes up and down, but long term it goes up
- Maybe renting is for you, you can live where you want, pay what you want and have no commitment or risk
- Consider investing smaller and for shorter terms, shares, currency, gold or similar
- Still, don't over stretch your wallet, create a budget, track what you spend and suddenly the future might become more important to you as you realize just where your money goes and on what
Article submitted Sunday, September 07, 2008
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