Owning your own home is one of the most common ways to create wealth and live a comfortable lifestyle. Paying off your debt as quickly as possible means you'll own your home sooner and have money to do other things.
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Here are three strategies that may help you pay off your debt faster:
If you've had your home loan for at least two years, chances are your situation has changed since settlement. Market conditions also change over time as do the loan products offered by many lenders, so there could be a better home loan for you. Your loan should be reviewed to ensure it still works with your lifestyle. You may be able to save on fees, or benefit from a lower interest rate which could help you to pay off your loan faster or free up some cash for other purposes.
There are several main reasons why you may wish to refinance, these include:
- the opportunity to obtain a lower interest rate
- the chance to shorten the term of your loan
- the desire to convert from a fixed rate to a variable rate (or vice versa)
- the opportunity to utilise equity in your home to finance a large purchase or to undertake renovations
- the desire to consolidate debt.
A Bernie Lewis Mortgage Broker can look at your individual situation and help you determine whether refinancing your existing loan would be beneficial.
Once you've selected your new home loan, your existing debt is refinanced into this new loan. Exit and/or penalty fees may apply but your Mortgage Broker can show you whether you’re financially better off by refinancing your existing loan.
It is commonly thought that refinancing a home loan is difficult and costly and many borrowers don’t consider changing thier home loan once it's established. However, the process can be quite straight forward with the help of your mortgage adviser, and you could in fact benefit from a different loan product.
This strategy is for people with a home loan and other personal debts, such as a car loan, personal loan and/or credit cards.
How it works
Most personal debts are repaid at a higher interest rate than a home loan. By consolidating your credit card debt and personal loan(s) into your mortgage you can save money on interest.
To use this strategy effectively make sure you repay your personal debts in the timeframe you originally planned. For example, a five year car loan that is consolidated into a home loan should be repaid within the five year period, instead of the 25 year home loan term. If you were to repay this extra debt over 25 years you'll end up paying more interest than if you had not consolidated your car loan into your mortgage.
Many people wait until their home loan is repaid before starting to invest. Unfortunately this means they invest later in life, limiting the growth potential of their investments. Debt recycling lets you invest now and continue to pay-off your home loan reasonably quickly.
How it works
Debt recycling involves 3 key steps:
- Use your home equity as security for a separate investment loan
- Use the investment income and any tax savings you receive from your investments (as well as your surplus cash flow) to help reduce your outstanding home loan balance
- At the end of each year, re-borrow from your investment loan the amount you have paid off your home loan to purchase additional investments.
This strategy is not for everyone, so it is important that you get advice first.
A Bernie Lewis Mortgage Broker can help you decide whether refinancing is a suitable option for you. Call 8300 8300 to make an appointment today.