Why to Get Aggressive with Home Loan Repayments
There is no doubt that a mortgage is a big financial commitment, yet much like finally owning your own home it can sometimes take a while for reality to kick in after you've signed that lender contract.
New home owners may only start to really feel like they own the joint when it dawns that there will be no more property inspections, they can hang whatever artwork they want up on the walls, and especially when they realise that when things break, someone else isn't going to fix them!
As for having a mortgage, there is nothing quite like that first home loan repayment to bring you down from cloud nine and back to the joys of balancing the monthly budget.
Yet repayments aren't just a static reminder and a regular drag on your bank account, they are also an opportunity to get aggressive and take years off your home loan.
You'll pay less interest
Interest on your home loan is calculated daily, so you don't even need to do any maths to figure out that the more you pay towards your mortgage each month, fortnight or week, the less interest you will pay over the full term of your loan.
Even upping your repayment by a relatively small amount could potentially net you thousands of dollars in interest savings.
You'll build equity quicker
Aggressive repayments won't just eat away at the interest charged on your loan quicker – they will also help you to pay back the loan principal faster.
That means that your home equity will grow quicker, and this could help you with any big plans you might have for the future.
Your equity is the difference between the value of your home and what you still owe on your mortgage.
As well as being a handy indicator of your repayment progress, it can be used as security to get favourable terms on future loans for future property investment, home improvements, holidays or other purchases that you need financial assistance with.
You'll be mortgage-free sooner
Of course the most obvious prize awaiting those who aggressively tackle their repayment responsibilities is the possibility to be free of their home loan sooner.
If you thought it was surreal to be a home owner for the first time, wait until you own the freehold of your house!
You can't put peace of mind in the bank account, but you can deposit that hard earned money you no longer need to put towards your loan.
Once you are liberated from you mortgage, you may find you can afford all kinds of lifestyle luxuries or changes that you couldn't before.
Get a home loan with the flexibility you need
Don't start thinking about home loan repayments only once you've bought a home – you need to be planning ahead before you've even started house hunting.
Many buyers think that the interest rate is the most important characteristic of a home loan product, yet the repayment schedule and how flexible it is can be just as critical.
With some loans, for instance, you may need to pay a charge each time you wish to make an extra repayment.
That's fine if you don't plan on changing how much you pay, but if you plan to do all you can to pay back your loan quicker, such as upping repayments when you get a pay rise or by putting extra money windfalls from tax returns or inheritances towards your mortgage, it is important to arrange a loan that lets you do so.
A mortgage broker can help you to find a loan product that has just the right mix of features for your repayment goals.