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CUT YEARS OFF YOUR MORTGAGE

CUT YEARS OFF YOUR MORTGAGE

 From the first payment you make you can start and see an earlier end to your mortgage.

By paying a bit extra on each payment you will reduce the principal quicker, thus the interest on the balance will be less and the interest you would have paid goes also off the principal.  The more frequent you make your mortgage payment the better.

How much will I save ?

Here is a link to a wonderful website where you can work out exactly how much you will save and how much earlier you will be mortgage free.

The website below is an American one but don’t worry, the figures would be the same if it were NZ or any other decimal currency calculator with dollars and cents as the local accepted currency. No need for exchange rates etc. just accept the figures it gives you.  HOWEVER, you may need to actually write this webpage  into the search bar  rather than copy and paste, as it is the only way my computer will accept it.

Mortgage Calculator 

A word of warning.

Make sure your bank is using the extra you are paying as a reduction of your principal. Many years ago I did this only to have a letter from my bank some 5 months later telling me I was now in credit for 1 months payment. This would indicate some of my extra was paying interest.  THIS IS NOT WHAT YOU WANT.  The interest on your outstanding balance is calculated daily so every cent you put off the principal today will not incur interest tomorrow.

If you are on a floating interest rate where lump payments or extra payments can be made, all the above should apply,  however, if you are on a fixed interest rate  for 6,12.24 or more months you may need to speak with your bank as I am of the opinion you cannot make lump or extra payments if you are on a fixed interest rate.

Home owners tend to move on average every 5 or so years

The consensus is that for the first 5 years of your mortgage you are paying mostly interest.   If both statements have any weight this means when you buy again, while you may get capital gain on what you are selling, you will pay that same amount when you buy, and you have once again possibly a mortgage that for the first 5 years your payments are mostly directed to interest with very little coming off the principal.

If you manage to stay put for some 5 or so years, you could use the equity in that home to buy another.

And here is a tip. Email me at anne@topnotchagents.co.nz  if you need any help with the paragraph below.

Buy the second property at a price an astute investor would buy. Arm yourself with information on the rental you can expect from that property. Speak with a Registered valuer and let them know you need $ xx to make this work and if they cant see that figure in the property don’t do the valuation.   Here is an example.

I bought a property in Manurewa in 2003 for $105,000

It valued to $148,000.    The rent I received was enough to cover the $148.000 mortgage payment and rates.   The difference between what I paid and what is was worth was $43,000 known as equity.

I then asked the bank to reduce my own home mortgage by $43,000.   Remember, the bank has the mortgage on your own property so they have plenty of “equity” in that property should they need it.

My mortgage was $80,000 on my own property, so now it was only $38,000 and that is all I was paying mortgage payments on, plus of course the rental payments were paying the rental property mortgage.  I did the same twice more and after the 2nd time I was mortgage free on my own home. Within about 4 or 5 years the market has risen sufficiently that selling my first rental property for $156,000 (remember, I only owed $148,000) was easy.

Later, I made the mistake of selling all my properties, excluding my own home, prior to the Auckland boom which started around 2013.  Who could have foreseen this?

Yes, there are many ways to get your mortgage cleared earlier and I have shown just two.

If you decide to buy a rental, make sure it is compliant with the new Residential Tenancy Act 2019 which calls for Landlords to have certain elements in place before a property can be rented out.   Enquire about the additional obligations on a Landlord which are coming into force around April 2020.

I hope this article gives you food for thought.

If you are thinking of selling your property go to our website where you will be able to use our free service in obtaining the name and phone number of the most ideal agent in your area.

We are not Real Estate Agents, we are Referral Agents and not affiliated to any one company.  It is you, our client, who we look after and as an added bonus when the Agent we suggest sells your property we will reward you with a Thank You for Using our service of up to $500 or more Cash!  Yes, and our service is free to all home sellers in NZ.

DISCLAIMER

While all information given in respect of clearing your mortgage faster is written in good faith, any action you are thinking of taking should first be checked out by phoning experts in the various fields you may deem necessary for you to make a calculated and informed decision. Neither the Author nor TopNotch Agents NZ Ltd. will take any responsibility for any action you take on any of the information given above. You should do your own research before acting.