Why That Surprise Windfall Should Go Towards Your Home Loan
Remember when you were young and you'd miraculously find a few dollars on the ground somewhere. Finders keepers!
Life throws little surprises your way every now and then, and nothing is sweeter than when those treats have monetary value.
However, there is a difference between putting your hand in a pocket and discovering a twenty note, and receiving a bonus at work, tax refund or inheritance to the value of several thousand dollars – and it's not just the extra zeros!
When you all of a sudden find yourself with a serious sum on your hands, you may embark upon an interesting internal dialogue.
Should you splurge on that car you've always dreamed of having or pay off your student debt? Would it be better to fund a family holiday or to get the roof repaired? New hovercraft or new camshaft?
If you have an overactive imagination you might even see a little angel and devil take up residence on your two shoulders!
Well what if we told you that you can be responsible and fulfil a dream all at the same time?
You could if you were to put that unexpected wealth towards your home loan.
Lump sum goodness
The reason why it makes such sense to do this is because it's a great investment for your future.
First of all, it's not like you will be eating into your budget. You can't plan for windfalls that you don't see coming, so even if you are a scion of fiscal discipline, you won't be neglecting your savings if you don't contribute to them with this new amount.
In fact, you may be able to save more in interest over the term of your loan than what you put in as a lump sum because of the very nature of how lenders calculate interest.
This is done each day as a percentage of the total balance left on your loan. So, if one day you were to pay off an extra chunk of your mortgage, you'll be charged less interest on each consecutive day of your loan term than if you hadn't.
That could add up to some serious savings over even just a few years, and if you have a decade or more to go these will only further amplify.
Before you act
Before you go running to your lender excitedly with your lump sum, you may want to confirm that your loan allows you to make such extra payments.
Depending on a variety of factors, it is possible that your loan doesn't, or if it does, there is a charge for doing so.
If you're not sure, speak to your lender or to a mortgage broker to clarify the features of your home loan.
In the event that you know you can't, it may be worth considering moving to a mortgage that does allow lump sum repayments.
Time to refinance?
The thought of refinancing may be a bit scary, but there is no need to be daunted.
Instead, talk to a mortgage broker about your situation and whether a change might do you good.
People choose to refinance for many reasons, and a common one is so that they can have more flexibility with how they choose to pay back their loan.
You may decide you are happy with what you have, or alternatively that there is a way to restructure your mortgage that is a better fit with your financial objectives, including the biggest goal of all: becoming home loan-free.
Of course, when that day comes you'll no longer have loan repayments to worry about, and won't need to bat an eyelid when the hovercraft blows a camshaft!