Paying off your Home Loan by making Extra Repayments
By making early repayments, extra repayments, and refinancing you can pay off your mortgage early and save yourself thousands of dollars of payments in interest. Speak with financial advisers, and inevitably they will tell you that one of the best things that you can do to improve your financial security in the future is to pay off your home loans as soon as you can. The reason for this is simple. The interest that you have to pay on your home loan is not tax deductible, and all the money that you are spending on your house could be invested in something that earns you money.
One of the best ways that people can reduce the amount of money that they will spend on their home loans is to make early repayments. This means paying off the mortgage more frequently. If you pay 2000 a month on a mortgage, for example, you can put yourself ahead by twenty four thousand dollars by the end of the year. Pay only a thousand a month, on the other hand, and twenty six thousand dollars worth of capital and interest will be used up. In this way, early repayments can be very helpful in allowing you to pay off your mortgage early.
Extra repayments can make a big difference as well. It is surprising how much difference a little extra money can make. Just adding fifty dollars a month to your payments can cut several years off of your repayment schedule on a two hundred thousand dollar home, and it will save you thousands of dollars in interest. Every bit of money that goes into your mortgage will cut into the interest that you owe. One practice that can be very beneficial is to continue paying the same amount on your mortgage even if the rate on the loan is reduced. The prospect of making smaller payments may be tempting, but it is much better for you in the long run to pay off as much as you can on the loan, allowing you to pay off your mortgage early.
Nevertheless, financial advisers will often note that there is a point at which it starts to make more sense to invest extra money than to put it into your home loan. The point at which this occurs will vary depending on the available investments, the cost of the home, and so on. For this reason, it is wise to speak with financial advisers to have them clear this up for you.
A similar solution to making extra repayments is the use of offset accounts. An offset account is used to pay off interest on your home loan. Essentially, an offset account is a savings account. However, instead of the money accumulating in the savings account, the corresponding interest is deducted from your mortgage. In this way, the more money that you place in your offset account, the less money you will need to pay in interest to the firm that provided you with the mortgage in the first place.
Another choice is refinancing the loan. This is an option if you feel that the interest you are paying on the original loan is disproportionate to its value. This means restructuring the loan. A second firm can set up a new mortgage by paying off the original mortgage setting up a new one with you. Refinancing is not always a good idea, however. It is important to look at the exit costs. In many cases, the costs associated with exiting a mortgage can be much higher than the benefits you will receive by refinancing in the first place. In addition to this, you lose the equity that you had gained by paying off the original loan. Financial advisers can help you make the right decision when it comes to whether or not you should refinance home loans.