This is a guest post
There is so much information out there about how to choose the correct mortgage but if you really want to save money, it’s what happens next that matters. So, how do you pay off your mortgage faster? What are the tricks?
Switch to rapid repayments
Here’s some food for thought: with a $300,000 mortgage, amortized over 25 years (essentially, an average mortgage), rapidly repaying your costs would save you $19,887 in interest payments, plus it would slice 2 years off your mortgage (based on an interest rate of 3.52%). And if you don’t believe me, do the math yourself with a mortgage calculator.
But how do rapid repayments work though, I hear you mumble? Bi-weekly rapid payments split your monthly payment in half, meaning you pay it every other week. This means you pay one full extra payment every year. That one extra payment saves you hell loads of interest. Happy days!
Make lump sum payments
Let’s use our average mortgage example again: if you made lump sum payments of $1,000 each year on a $300,000 mortgage amortized over 25 years, you would save a massive $10,747 in interest, plus cut a whole year off your mortgage.
Ok, ok, so you’re saying where the hell does he expect me to find an extra $1,000 a year? I don’t have that kind of money just lying around. Well, saving $1,000 means putting aside $83.50, or cutting back on 17 lattes a month. Obviously, each person’s budget is different, so just be sure to figure your own personal expenses and budget from there. Just think of the money you would save in the long run.
The great thing about lump sum payments is that the payment goes directly towards the principal of your mortgage: you’ll be paying your mortgage instead of just paying off that pesky interest.
Do NOT sign your mortgage renewal letter
You’re a few months away from your mortgage renewal letter and chances are you’ve completely forgotten about it. So you get a letter from your bank letting you know that it’s time to renew but, not to worry, because all you need to do is sign this letter, send it back to them and they can renew it for you automatically. Aren’t those lovely people at the bank just so helpful, always looking out for your
best interests? NO! Don’t do it! Don’t sign it!
Here’s a newsflash: the bank will NEVER give you the best rate straight off the bat. It’s in their interests to offer you the rates that suit THEM before you finding the ones that suit YOU.
So, even if you’re sticking with your current lender, make sure you at least negotiate the rate. Secondly, consider looking at other lenders. Compare the market and find the current best rates. If your lender can’t match the competition, consider switching teams.
It’s important to remember your renewal date, however distant it is. This will prevent fines.
Compare mortgage rates
It’s a simple fact that those who compare mortgage rates save big money. There are no two ways about it – it’s just TRUE! So, if you don’t compare, you’re doing yourself a massive financial injustice. For instance, users of one particular site who compared rates save an average of 72 basis points (0.72%) on their
mortgage, over those who opted for the five big banks’ discounted rates.
Based on our average mortgage of $300,000 amortized over 25 years, rate comparison site users would save around $35,000 in interest over the course of their mortgage.
It’s a no-brainer. Get on a rate comparison site now and see just how much you could be saving!
We have a bi-monthly mortgage payment which will save us not only interest on the loan but cut the term by 8 years.
It is crazy when you think of what $1000 extra per year can shave off of your total repayments. I knew that extra is good, but didn’t realize it made that much of a difference. Thanks for the info 😛
Interesting! I didn’t know about the renewal thing, but that’s probably because we don’t have an ARM or anything crazy.
We recently refinanced for a shorter loan time with a smaller interest rate AND money back! Woot!
I was just about to write a post on this! It is very important to compare mortgage rates to make sure you can get the best deal possible.
This is where it’s important to make sure you don’t take on a mortgage that comes with an early payoff penalty. I’m not sure if it’s as common these days, but you used to usually get dinged with a hefty penalty just for paying off a mortgage early. The banks really do want to stretch out that mortgage as long as possible.
Great article. This is one of the best ways to save a lot of money on a mortgage
Very nice! Making rapid repayments is a very effective payment method. Over the years, I’ve come across many people who have done this, and did very well in terms of their savings (as well as quickly eating away their mortgage payments).
The average U.S. federal income tax refund in 2012 was about $2,800. If you don’t need the money to pay off any higher interest rate debt and you don’t need it for any other essentials, use your refund to pay down the principal on your mortgage.
Fantastic! I love reading posts like this every so often with direct and practical advice. Especially on topics I know very little about- mortgages! Who is the guest poster? Does he have a website, because I’d love to check some of his other stuff out!
(By the way, I haven’t commented before but I do really like your blog. I’ve just gotten into it and I only really read through those whose blogger personality I like. Great work :))
I use this strategy in commercial note payments, and it works.
A tip I read a few weeks ago: round the payments up. If the mortgage payment is $280 (ours!) then pay $300. The reasoning behind it is that you are probably already budgeting the $300 because that is easier to add in your head!
This is the strategy I’ve employed with my mortgage. I also pay a little extra each month, and then even add more to the end of the year. But now that I am renting out my house, I’m only paying the normal monthly payment and saving my money.