According to Australian Bureau of Statistics, Australian households are increasingly getting over-indebted. Around 77% of these over-indebted households “lacked sufficient ‘liquid‘ assets to cover a quarter of the value of their debts.” This might not be an ideal situation, but it is a reality. Therefore, it is only wise to think of strategies that can help reduce the mounting debt using financial instruments. Mortgage elimination is one such tool and there are companies such as EQC Wealth Management that provide assistance and guidance.
In the recent years, mortgage elimination strategies have struck a chord with the Australians and for obvious reasons. Elimination of mortgages not only makes the financial position of the homeowner secure, reduces the overall amount being paid back in interest, but it it also enables them to take the next logical step of building wealth.
Eliminating mortgage debt quickly not only helps you save thousands of dollars in interest, but also achieve the much-deserved peace of mind.
What is Mortgage Elimination?
Mortgage elimination is a set of strategies that borrowers employ to repay their loans quickly. They include budgeting tools, negative gearing, and tax minimization. Typically, people use these strategies to increase their principle payments to reduce debt quickly. The problem with mortgage management is that we stay in ‘auto’ mode when dealing with it. After taking a loan, we condition ourselves to pay the minimum repayment amount or installment and go on like that for years. That’s hardly a financially prudent approach, and it doesn’t take complex calculations to understand this. With so many interest calculators available online, it is quite easy to visualize the interest incurred on long term repayment schedules. Once you calculate the total interest you will be paying the bank, you’ll realize that minimum repayments cost you a lot of cash.
So, if you are not the biggest fan of paying back your mortgage plus the hefty interest, then it is time you start looking at a mortgage elimination programme.
How Does Mortgage Elimination Work?
Depending on the severity of the mortgage burden facing you, there are different ways to go about mortgage elimination. Here are some effective ways that may save you thousands of dollars.
A common mistake committed by first-time homebuyers is that they jump into a loan product without completely understanding its bearing on their finances in the future. They may have ended up with a loan product with a higher interest rate or one that lacks offset and redraw facilities.
So, what do you do? Can you refinance?
If you have made a bad choice because of lack of information once, it does not mean that you have to pay for that decision for the next 30 years. Go loan shopping again and find a product that that better suits your mortgage elimination goals. Do a thorough comparison and if you can, take help from an expert or a mortgage broker. All in all, make a calculated move, literally. Find out about the interest rates and fee structures. You can also access online calculators to crunch those numbers. Make sure that you are getting a better offer than what you already have. Also, be informed that there may be an exit fees for loans granted after June 30, 2011, a break fee for loans with fixed interest rates, and a start-up fee for new loans. You should account for these in your calculations as well.
A good way to circumvent these fees is to ask your current lender to restructure your present loan product. If you bring to the notice of your lender that you are planning to migrate to another service provider because of cheaper rates, then they might offer you another product. Again, make sure that you do your comparisons before arriving at a decision.
If you have shopped around and know that you have opted for a reasonable loan product that is offering you the best deal in the market, then you can eliminate your mortgage faster by learning some good repayment habits.
Make Additional Payments
Irrespective of how big or small is the loan you have taken, repaying back as much as possible is always a good strategy.
You must become thrifty. Spend less on unnecessary items and more on your repayments. Any kind of money that you can put towards your loan repayment is going to save you a lot of money and stress.
Pay the Loan Back Faster
You can also repay your loan faster by changing your payment pattern. For instance, instead of making payments every month, you can make the payments every week or fortnightly. In this case, the portion of your repayment that goes towards your principal increases. As the principal money goes down, so does your interest.
Increase the frequency of your loan payments. It will not only keep you disciplined, but also help you save money for future investments.
Investigating Mortgage elimination is a neat way to understanding your finances better. Understanding how powerful compounding interest can be, can help you make decisions which will save you thousands in the long run. With mortgages becoming such a significant part of the Australian life, it’s crucial for everyone to be financially aware. At EQC we like to tell our clients to – “change the way they think about money!”. To learn more about mortgage elimination download our brochure “10 ways to reduce your mortgage”, or call us today to start you on your way.