When you take out a mortgage to buy a property, you often do so with the knowledge that it will be over a decade, if not two or three, before you’ve paid it off. However, not everyone intends on staying in the same house for that long, which means you often need to sell your home through an agency or professional buyer with a mortgage.
Given that selling with a mortgage can cause a significant dent in your savings, it can be worthwhile to pay off as much as possible before listing your property for sale. If you need a helping hand figuring out how to do this, consider some of these helpful tips below.
Being a delivery driver, a pet sitter or walker, or performing freelancing tasks online are all ideal ways to increase your income.
Make Extra Payments
If you make extra payments on your mortgage from the start, you may not even need to sell a house with a mortgage when the time comes to move on.
Start by making your first repayment on settlement day. Generally, payments start being taken out of your bank account in the month following settlement, but it can be worth starting much earlier.
If you can make your first repayment on settlement day, you may be able to reduce the principal before interest accrual begins.
You may also consider paying more than the minimum payment amount and adding any extra earnings to your mortgage, such as tax return payments and workplace bonuses. These can all help you reduce your principal and interest payments.
Examine Your Rates
Mortgage interest rates are wide-ranging, with different levels of flexibility to suit different lifestyles. If your goal is to pay off your mortgage fast, flexibility is likely what you’ll need.
Look for the most competitive rate, but keep in mind that an adjustable rate is often a better option for people making additional payments. Generally, there are few or no fees associated with making extra payments, which may be in contrast to some fixed mortgages that do come with them.
If you have already fixed your mortgage for a set period of time, weigh the pros and cons of changing. It may sometimes be in your best interest to wait until the fixed period has ended before you consider other options.
Don’t Be Afraid to Negotiate
Not all lending institutes will be negotiation-friendly, nor do all people’s financial situations put them in a position to negotiate. However, the interest rates and fees you see advertised are generally not always the best any bank or mortgage provider can offer you.
There’s no harm in seeing if there’s any wiggle room to save money, especially if you have a healthy savings history, credit score, and work history. Even if you don’t believe you have a chance of receiving a lower interest rate, you may be able to save money on establishment fees at a minimum, which is an excellent place to start.
When you’re reaching the end of your mortgage term and need to evaluate your options, don’t be afraid to shop around at different banks and lending institutions to see if anyone is offering something better than what you already have.
Some banks offer more desirable lending rates than others and even provide incentives for you to change banks, like free money. Changing banks halfway through a fixed mortgage term may not make financial sense, but towards the end may be a different story.
Many banks also understand how much work can be involved in switching all your automatic payments over, so they sometimes offer to do this for you as a way to say thanks for becoming their customer.
Establish an Offset Account
Most homeowners are familiar with the incredible amount of interest they pay to own their own home with a mortgage. For example, a mortgage on a $450,000 home with a 0% deposit and 4.5% interest rate over 30 years can mean you’re really paying over $800,000.
Unless you can purchase a home without a mortgage, there is generally no way to avoid interest payments altogether. However, by setting up an offset account, you may be able to lower your payments considerably.
When you direct your monthly income into an offset account, the balance is offset against your loan balance. As a result, you may be able to pay lower monthly interest fees than if you kept your everyday account and mortgage account separate.
Refrain From Lowering Your Repayments
When interest rates fall, it can be tempting to lower your repayments to enjoy more disposable income. As strong as the pull can be for a new car or a vacation, you may find that keeping your repayments the same can benefit you when the time comes to sell your home.
As long as you can afford to pay the same monthly payments, you may end up paying less interest, more principal, and keep more money in your back pocket when the time comes to sell. Taking this approach can also mean that if rates increase from what they currently are, you may not need to rethink your finances or make sacrifices to maintain your current lifestyle.
Increase Your Income
It makes sense that if you’re going to pay off your mortgage faster before selling, you want to make sure you still have plenty of money left over for other bills, necessities, and luxuries. To make that happen, you may decide to take on a second job.
Being a delivery driver, a pet sitter or walker, or performing freelancing tasks online are all ideal ways to increase your income. You may decide to set this income aside and add it to your mortgage in one lump sum or increase your monthly payments.
Curb Your Spending
Sometimes, you don’t need to earn extra money to put onto your mortgage; you just have to be more careful with your spending. Take a look at your bank account and count how many unnecessary payments there are.
If you can cut back on just a few of these, you may be able to reduce your mortgage balance by hundreds of dollars each month, which may result in a more profitable house sale.
When you list your property for sale, your ultimate goal is generally to make as much money as possible. However, selling with a mortgage often means you receive a mere fraction of the actual asking price. Potentially increase how much money you get to keep by using some of these methods above to pay off more of your mortgage.