The dream of owning your own home is one shared by many, all around the world. This takes most people their entire working life as they enter 30-year loan terms and typically buy a new house every fifteen years, this usually is to increase their property size but also commits them back to another 30 years of repayments.
It is possible to be mortgage free in 10 years for those willing to sacrifice a little for a lifetime of no home loan repayments.
Large Initial Deposit
The key to being in a position where you can pay off the home loan is by not borrowing more than you need. If you borrow $200,000 over ten years at a rate of %3.69 your repayments will be $1996 per month. Whereas if you pay off an extra $50,000 initially your repayment will reduce to $1497 p/m. This saves you almost $10,000 in interest alone.
Unless you have a wealthy family, you will need to put in a serious effort into saving for a large deposit. The first step is to pay off any credit cards or loans you have. Looking into a high-interest savings account will help also, many of these accounts have tie-in rates where you can’t withdraw the money for a set time, when saving for a substantial deposit this will aid you. If you currently rent, it may be wise to see if you can lodge with family to help you save more, this isn’t always possible, but it is a great strategy. Staying with the family will encourage you to be strict with saving as they have made a sacrifice to help you.
Bi-Weekly or additional Payments
No matter how long the term of your home loan, you can always pay off more of the principal borrowed with extra payments. There may be additional fee’s applicable so check with your home loan provider. A thorough investigation before agreeing to a loan is wise if you believe you will pay off more.
A smart way to increase your payments is via a bi-weekly payment. This means you make a payment every two weeks, not twice a month. This increases your yearly repayments by one month with little effect on you. For instance 52 weeks in a year, divided by 2 = 26 repayments, whereas paying monthly you would only make the equivalent of 24 repayments. Bi-weekly payments can reduce your mortgage by eight years on a thirty-year loan term.
Most financial institutions have home loans available where you can add payments and decide on the length of the loan. You can then use an online home loan calculator to understand the savings you can make from short-term and early repayment.
Earn Income from the Home
To follow on from early repayments, using your home to earn income is a sure way to get the loan paid off quickly. You can make money in various forms like taking in a lodger if you have a spare bedroom. Being strict and ensuring all the rental money goes to paying off the principal of the loan will quickly reduce it, and you may even make a friend (or two) in the process. The other way is by letting the house when you are on holiday, and many people have extended vacations so why not advertise on holiday sites. Rentals for tourism purposes promises a potentially large return for a relatively short period of time.
Be Frugal
The hardest part of aiming for a long-term goal like clearing a loan for a house in ten years is being disciplined with your money. Keep the goal clearly in your head of being debt free forever, and this will boost your ability to save and not splurge. Being disciplined with saving is all about the small things, take a packed lunch to work, take a bus or walk instead of driving. If a car is not necessary, get rid of it, it is an expensive machine that spends most of the time sitting there doing nothing.
Set yourself a realistic budget where you can still live happily but are not overspending. Bills for food, clothes and utilities come every month so make sure you know what your maximum is. And of course, be mindful of leaving some room in the expenses for little treats like eating out or the cinema.