Before figuring out what the best mortgage structure is for you ask yourself, Am I a spender or a saver?
This is an important question because it’s not a nice feeling struggling financially just to make your mortgage payments nor is it a good feeling knowing you’re in the position to reduce the amount of interest you’re paying but you’re locked in with penalties if you were to restructure your loan
If you’re in your 20s & 30s chances are your mortgage would have been set to a maximum loan term of 30 years.
Theres a couple ways you can address your loan structure if you’re a saver.
1. Reduce your maximum loan term from 30 years to 20 – 25 years.
A $500,000 mortgage at 3.89% over 30 years (Principle & Interest) will cost you $313,883 in interest payments vs $258,396 at 25 years and $203,085 at 20 years.
Will it be tough? The answer is yes. You would be looking at paying up to an additional $150 a week for the next 20 years but the beauty is you could be mortgage free 10 years faster.
2. Float a portion of your loan annually and re-assess each year.
For those of you that are aggressive savers and want the flexibility to pay off your mortgage in lump sum payments without penalties then a floating option may be the most suitable. Generally floating rates will be a lot higher than fixed rates but if you’re knocking off debt regularly you won’t feel the pinch.
Have a target in mind to what you’re comfortable paying off. If it’s $20,000 per year @ ($384pw) then I’d recommend thats all you float. This way you could potentially clear your mortgage even quicker than a 20 year loan term if you stay focused and disciplined.
For those of you that are spenders, a flexible facility or revolving credit facility that allows you to deposit lump sums to decrease your loan amount and re-draw money when needed is a great option if you’re needing access to money without having to apply for new lending.
Thanks for reading everyone