BE SMART WITH YOUR MORTGAGE

It’s an easy mantra to remember – the faster you pay off your mortgage, the quicker you will attain financial security.

For most of us mortgage and tax repayments are the biggest onus that one must endure. I have handled plenty of queries with regard to best interest rate on offer but the important question should be, how fast can I pay off my mortgage. Just imagine that you have paid off your mortgage and you are on the same income; suddenly you have a surplus to invest and enjoy a decent lifestyle with.

What you need to know is that interest rates are not controlled by banks but financial markets that are in constant flux. What we can control is the overall interest we pay during the tenure of the mortgage loan. The interest rate you are paying now is not as important as the interest you end up paying throughout the tenure of your loan.

Always remember that banks are there to make a profit. They would give you an umbrella on a sunny day but when it pours – the umbrella is taken away. The role of a financial institution is to look at ways to secure more profitable businesses from its customers. Expect a call from your bank to offer credit cards, insurance and of course loans. But the banks will not be calling you annually for mortgage reviews and suggest ways for you to save on interest cost and even pay off your mortgage as soon as possible.

However, a mortgage adviser (home loan adviser) would operate on a more personal level with the client. You will get suggestions on adjusting your monthly or fortnightly repayments so you can work towards reducing your loan tenure. The mortgage adviser would suggest a financial set up where any excess savings can be channelled into servicing the mortgage repayment.

They would work with you to reduce the tenure of your loan and thus work towards the goal of paying off your mortgage repayment as soon as possible.

A perfect example that highlights the difference between a bank and a mortgage adviser is how interest rate fluctuation is handled. Whenever interest rates are lowered, the banks would reduce your repayment rate but the loan tenure would remain the same.

But the best advice should be to retain the repayment amount thus reducing the term of the loan. A pertinent information a mortgage adviser would have shared with his or her client.

There are also incidents of clients switching banks depending on lower interest rate of the day. However, what’s actually happening is by switching banks, a client who may have just 20 years with the previous bank may reset the term to 30 years with the new bank. A client may feel relieved assuming they are paying lower repayments, but in reality they would end up paying more interest for increasing the life of the loan.

As a mortgage adviser, my suggestion is for clients to look for opportunities to increase your repayments; such as allocating your salary increment towards paying off the loan, give up on unnecessary vices and even exploring ways to save money. These extra savings can go towards paying off your mortgage repayment and set you on the path to surplus and debt free life.

Do not take on additional debt just because you can.

Happy settling your mortgage.