BY CANNA CAMPBELL
Having a mortgage can feel like an overwhelming responsibility even at the best of times. However, there are simple tricks we could implement to relieve mortgage-related stress and add more efficiency to reduce your mortgage in a faster timeframe.
The first tip is to have emergency money. Everyone needs emergency money, but the amount differs on a case by case basis for each person. There is no magical one-size-fits all formula. You need to look at your own situation and identify what realistic concerns/situations could impact you and what is the cost of each one – total them up and this will give you an indication of the emergency cash required. Of course, you can consider accrued annual leave, sick leave and any long service leave (which may help you if you need to take extended time off work, for example due to illness or caring responsibilities) as well as any existing emergency money you may have set aside already.
Once you have that emergency money number, gradually build it up through regularly setting some money aside each time you get paid. However, to make sure that this emergency money is utilised most efficiently, these funds could sit in your redraw or offset facility against your home loan, assuming that it is non-deductible debt. It is tempting to make this money more accessible; however, it is generally better in an offset or redraw facility, therefore saving you valuable time and interest against your home loan, than earn a fraction of it in interest, which you then have to pay tax on.
The next step is to look at your budget and see which expenses can be reduced or completely removed to free some extra cash in your budget. This can then be allocated towards making extra regular repayments to your home loan.
As an example, even an extra $100 per month on a $500,000 home loan with an average interest rate of 3% p.a. throughout the life of the loan (on a 25 year term, with extra repayments commencing 3 years into the loan) could save around ten thousand dollars in interest ($10,258) and save valuable time (with the loan potentially being paid off 1 year and 2 months earlier) – the cumulative effects really do add up. Be sure take into consideration any major change such as interest rate rises, using your redraw facility or even refinancing, as this can further impact the amount of time and interest.
Also, any lump sums such as tax refunds, bonuses, or even side hustles should go into the redraw facility or offset account. It may only seem like a small amount and unworthy of your time and energy, but in the long term, this could significantly reduce the years left on your mortgage.
The final step is to track and monitor your progress so that we don’t become deflated without our sacrifices and continued self-discipline. It is important that we be kind to ourselves and realise the progress we are making with our mortgages and how far we have come.
Each month, make a note of your mortgage and the date. Even better, track your mortgage term and see how it is reducing with each extra repayment. Once you see this progress, and the impact you are making, it will spark renewed motivation as you realise your sacrifices contributed to long-term financial improvement. You will feel more empowered as you realise the power you hold in becoming mortgage free sooner.
Canna is the founder of the financial media platform, SugarmammaTV, and author of financial advice books The $1000 Project and Mindful Money. She comes from a corporate finance background and is a licensed financial planner. SugarmammaTV provides educational content that helps make money and finance more approachable. She is also the founder and director of financial planning firm, SASS Financial Services.
This article was prepared in partnership with ING. The information provided in this article is of a general nature only and does not consider your personal objectives, financial situation or particular needs. The views expressed in this article are provided independently by Canna Campbell, a Financial Planner and an Authorised Representative of Wealthstream Financial Group Pty Ltd (AR 000309372) featured in the article. ING makes no warranty as to the accuracy, completeness or reliability of the information, nor does ING accept any liability or responsibility arising in any way from omissions or errors contained in the content. ING does not recommend any products, services or financial strategies mentioned in this article. ING strongly recommends that you obtain independent advice before you act on the content. Canna Campbell uses ING’s trademarks under arrangement with ING. ING is a business name of ING Bank (Australia) Limited, ABN 24 000 893 292, AFSL and Australian credit licence 229823.
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