Mortgages are great finance vehicles – they allow us to purchase our own homes. Without such a vehicle, there is a good chance that most of us would never be able to afford the home of our dreams. This convenience, however, comes at a price and it is a pretty steep one. If you only pay the minimum monthly installment, you will end up repaying not only the capital amount borrowed but also around about double that amount in interest as well.
The way around this is to put as much extra money as you can afford into your bond and repaying it earlier. By creating and sticking to a strict monthly budget, you can work at owning your own home free and clear in a few years and saving a bundle in interest.
Start off by listing all your expenses – split these into non-negotiable expenses like the bond, the car loan, etc. and those that can fluctuate, like entertainment, etc. As things currently stand, how much disposable income do you have? Where is your money going? Are there any expenses you can cut down on?
For example, let’s say you have cable TV, do you have the premium package? How much TV can you actually watch? How about entertainment? Any ways to have fun with friends that don’t involve spending money? Also look at ways of saving on groceries and power bills – for example, try, as far as possible, to cook double quantities of meals – freeze half – you will save yourself time, the problem of cooking the next meal from scratch and have some backup for those days when you simply cannot face the idea of cooking.
Check your debt levels – if you have credit card debt with high interest rates, be sure to repay those as a priority. Then apply the payments that you were making there to your mortgage. Contact your lender and check what their policy is on extra loan payments. (Some lenders only apply the extra payments once annually – no good for you at all.)
Let them know that you plan to pay extra into the loan and that that extra payment should be applied to the capital amount. Set up a separate payment order for the extra amount. Make the extra payment as soon after you are paid as you are able to to get the full benefit of the interest saved.