On average, most people take between fifteen and thirty years to completely repay their mortgages. It is however important to note that the longer it takes for you to repay your mortgage debts, the more the amount of money that you are going to use. For instance, if you were issued with a $200,000 mortgage at an interest rate of 5% you will repay more money if the repayment duration is thirty years than if the repayment duration is fifteen years.
Therefore, in order to reduce the total cost of mortgages, you have to effectively manage your personal finance issues so that you can increase your monthly repayment. You have to put in place austerity measures that will ensure you save the maximum amount of money so that you can clear your mortgage debts quickly.
It doesn’t matter how little you think you can save, every dollar that is saved will contribute a lot towards the principle. By implementing the following personal finance tips, you can reduce your mortgage repayment duration by several years and hence save a lot of money.
Cut Down Your Expenditure
One of the simplest ways of saving money is by cutting down on your monthly utility bills. For example you can start by switching off all your home sockets and switches whenever they are not in use. Remember all electronic gadgets use some energy when plugged into a power source. You might think that the power consumed is negligible but just think of how much money you can save for maybe one or five years.
You also don’t need to leave your tap running for prolonged durations. The amount of money you spend on entertainment is also something that you need to watch closely. When you are out with your friends or colleagues, you need to be careful so as not to spend more money than what you had expected.
Distinguish what you want from what you need
Before you take out your credit card to pay for something in your local store you need to ask yourself one simple question: Do you need it or can you survive without it? Most people waste hundreds of dollars every month buying junk goods that end up in a trash bin. You should always remember to buy only those things that you are going to use. You can use your savings to increase your monthly contribution towards repayment of mortgages.
Avoid impulse buying
Some people end up having huge debts simply because they go to an outlet and then start spending money on things that were not planned for. You don’t have to buy something that you have just seen at a store simply because you like it. For maximum mortgage repayments, you need to always write down a list of everything you are going to buy from that store. It is also important that you stick to your list of goods-to-buy.
Mortgage Repayment Tips
Now that you know how to save money, you just need to know how to leverage your new savings to pay off your mortgage quickly.
Ensure that the extra cash is credited to the principle balance
This means that you should not keep the saved money in liquid cash just waiting for next month so as to repay the mortgage. Always ensure that the extra money is paid directly to the lender so that the principle balance is reduced.
Refinance your mortgage
Refinancing mortgage means seeking another mortgage to pay for your current mortgage. The idea behind this personal finance strategy relies on the fact that interest rates vary each year, depending on the prevailing market conditions. For example, the average mortgage interest rate could be 5.5% this year and then increase to 7% next year. If you took a mortgage last year at an interest rate of 6% and then the average interest rate falls to 4.5% this year, you should refinance. This means you will take the 4.5% mortgage and then use the money to pay the 6% mortgage that you took last year. You will therefore reduce the total money that you will repay because your interest will now be calculated at a rate of 4.5%.
Consider shorter-term mortgages
This means that you should consider increasing your monthly repayment and hence reduce the total repayment duration. This personal finance measure will help you pay off your mortgage debts because the cumulative interest will be significantly reduced.
The bi-weekly technique
In order to understand this mortgage repayment strategy you should note that each year has 12 months but 52 weeks. This means that if you decide to repay your mortgage debt after every two weeks, at the end of the year you would have made a total of 26 deposits. If you divide this by two, then that will be an equivalent of 13 months. At the end of the year, you would have paid your mortgage by one extra month. Within twelve years you would have paid for an extra one year. You can clearly see that the bi-weekly strategy will help you pay off your debt quickly.