How To Manage Your Mortgage More Effectively

shutterstock_174203222Managing your mortgage is important if you want to avoid hefty penalties and stay on the path to paying off your home loan. Here are some tips that will help you manage your mortgage more effectively:

1. Set a budget.
Managing your finances, including your mortgage, starts with managing your budget. Firstly, have a look at how much money comes into your household every month. From there, you can decide how much money you’ll have to set aside for your repayments. You may also have to juggle your budget a bit if it’s already tight as it is. You can do this by looking at regular non-essential expenses that you could do without.

2. Cut your debt.
There’s good debt and bad debt. Good debts are things like your mortgage because you’re taking on that debt in order to have a home or an investment property that hopefully will make you money when you sell. Bad debts are debts you take on that don’t really add value to your finances or life as a whole. These may include impulse purchases that you bought with your credit card, which usually aren’t essential items or items you could have saved for.

It’s essential that you cut these bad debts as soon as possible. With debt out of the way, you’ll be able to free up more of your finances so you can pay off more of your mortgage and save up for other important things such as your retirement and your children’s education.

3. Pay more than the minimum, if possible.
Speaking of cutting your debt, you can reduce your mortgage significantly if you pay more than the minimum repayments if you can. Paying even $100 extra per month will eventually add up and may cut off months’ or even years’ worth of payments from your mortgage.

It is important to remember, however, to ensure your home loan requirements allow you to make extra repayments without a charge. This is typically the case with variable rate loans and not those with fixed rates. So, before you proceed, ask your lender about this.

4. Set up a direct-debit for your mortgage.
Managing your finances requires discipline and if you really want to be strict about paying your mortgage on time, then setting up direct-debit makes a lot of sense. Setting up a direct debit is also a great idea to ensure you don’t forget to make payment as often lenders will charge a fee for missed payments and that is something you certainly do not want, especially if you have the money for the repayment.

When setting up your direct debit, set a date that suits your personal circumstances. Maybe you get paid on a Monday, so Tuesday will be a good day for the repayment to come out. Direct debits are there to help make life that little bit easier, so take advantage of it.

5. Pay on time.
This is also important if you want to pay off your mortgage sooner or without having to pay more because of late payment fees, which may translate to several hundreds of dollars. If you foresee any difficulties in making on-time payments, speak with your lender right away. They may be able to provide you with other options (e.g. longer payment terms in exchange for lower interest rates) so that you can avoid penalties in the future.

6. Review your mortgage regularly
Have you reviewed your home loan in the past 10 years? With record low interest rates and lenders under pressure from regulators to promote owner-occupier home loans, lenders are increasingly offering better deals for home owners, even those with current home loans. If you haven’t reviewed your home loan for the past 10 years, you could be paying more than you could be.

A home loan that was great 10 years ago, may not be today or maybe your kids have since moved out, freeing some extra cash for you which you may want to put towards your mortgage, but your current home loan may not allow extra repayments. Speak to a mortgage broker about your current home loan to see if they could save you some much needed extra cash or put you on the right path to paying off your mortgage sooner.

Effective mortgage management is closely linked to managing your overall finances well. So, remember to take out only what you can afford and do everything you can to pay off your mortgage and other debts as soon as possible.

Written by Warrick Greaves.