Two Tips to Reduce Your Mortgage Costs
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Two Easy Tips to Lower Your Mortgage Costs
Reducing your mortgage costs can bring you closer to fully owning your home. Here are two straightforward strategies to help you achieve this.
Pay Fortnightly
Switching to fortnightly payments instead of monthly ones is a simple and effective way to reduce your mortgage costs. While a month typically includes two fortnights, a year actually has 26 fortnights. By paying half of your usual monthly amount every two weeks, you effectively make an extra payment each year. This small adjustment can significantly cut down your interest payments without much impact on your budget.
For instance, on an average mortgage of $200,000 over 25 years at a 7.5% interest rate, the monthly payment is $1,478 with a total interest of $243,400. By adopting fortnightly payments, you can reduce the mortgage term to around 21 years and save nearly $54,515 in interest.
Maintain High Repayments When Rates Drop
Interest rates fluctuate, and when they decrease, your lender will lower your monthly payments to match the reduced interest cost, keeping the loan term constant. However, if you choose to maintain the same payment amount even after a rate drop, the surplus will go directly towards the principal. This strategy can lead to substantial savings.
Consider the $200,000 mortgage at 7.5%, with payments of $1,478 per month. If the interest rate drops to 6.5% after five years, the lender reduces the payment to $1,369 to keep the 25-year term. However, if you keep paying $1,478, you'll shorten the term to 18 years and save $22,860 in interest.
By implementing these strategies, you can significantly reduce your mortgage costs and own your home sooner.
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