A big rise in home ownership over the past 20 years means that people are in debt because of mortgage borrowing. Invariably, a mortgage is a huge and life long commitment and can go into ones retirement. There is evidence that a mortgage loan can run into couple of generations in some countries. For example, father buys a home for himself and the grand children finish paying for it. Luckily, it is not as bad as that in the western society yet.
Good news is that there are ways to reduce your monthly instalments in respect of your mortgage. Lower monthly outgoings can mean an increase in your disposable income. Bigger disposable income helps to improve the quality of your life. Better and improved quality of life does not stop there, below are two strategies to help you get rid of the burden of mortgage debt-
Switch your mortgage between lenders.
In the absence of switching lenders on a daily basis, you can switch your mortgage between different lenders and each time taking advantage of the best deal. For example, Bank of America is offering a discounted deal at the introductory rate of 2.99% fixed for 3 years. The normal arrangement with discounted deals is that the interest rate reverts back to the standard variable rate at the end of that initial 3 year discounted period.
If the saving you make via this special deal translates into say $3,000 per year. You have the option of reducing you total mortgage by $3,000 by making a lump sum payment $3,000 to your lender at the end of the year and reduce your total borrowing. Over three years, you can reduce your borrowing by $9,000.
At the end of that three year special deal, look for some other lender with a similar or better deal and just switch your mortgage. But, it will cost me money to switch lenders Not at all. Most lenders will cover all your switching costs. Taking advantage of another three year discounted deal will result in another $9,000 saving. You can switch and save money for the life of your mortgage and make yearly lump sum payments until your mortgage is paid in full.
How much money have I saved and how many years can I shave off my mortgage from these savings
The money you save by the discounted deal over 4 years is equal to two year’s mortgage payment. Therefore, over 20 years of switching between lenders you will shaved 10 years off your mortgage. For example, you will have reduced your 30 years mortgage to 20 years in a straight line.
Opt for a daily interest rate mortgage and not for an APR (Annual percentage rate) one.
Deals like one account offer you the chance to pay interest on your mortgage on a daily basis. The distinct advantage of one accounts is the total flexibility. It is a life style mortgage because it gives you payments holidays if you so desire. Smaller payments due to change in financial circumstances is also possible.
Total flexibility in the way you want to pay your mortgage also allows you to make higher payments towards your mortgage debt. An extra payment of $10, $20 or $40 per month, it is estimated, can reduce your total mortgage by as much as 10 years.
Flexible mortgage does not need to be switched between lenders every three years. So, you can save yourself the hassle of switching between lenders. You can choose to make lower payments but if you want to pay your mortgage off early then pay a bigger instalment than required and you would have paid your mortgage ten or so years before time.
Finally, we have outlined two methods of reducing your mortgage payments. I am sure there are other equally valid methods and products on the market. We recommend a thorough search of the market and products before making a commitment.