Save money by paying your Mortgage off early
Friday, May 28th, 2010Paying a mortgage off early is something that many people have on a wish list. Most people will tell you its the best thing to do, but are they right? The case of paying off your mortgage early is pretty simple. Essentially if a mortgage is paid off before it’s end date, then you save the payments on the interest, which can be substantial.
Mortgages have a higher interest rate that general savings accounts, so the interest that you can reduce is maxmised by paying off your mortgage early. There are a number of different ways to repay a mortgage early. One of these is to pay money inton an offset account. This account is a saving accoun that reduces the interest that accrues on your mortgage. This has the benefit in that there is no question about it, or any fees if you need to withdraw money.
All in one mortgages are another way to overpay mortgages. These account have all your bank accounts in one place, including credit cards, personal loans, savings and transactions accounts all within the one mortgage acount. This can mean that savings go straight against your mortgage interest. Other benefits are that loans which have a higher interest can be charged at the lower mortgage rate.
There are however a number of reasons why it may not be a good idea to repay your mortgage early. Repayment penalties exist on many home loans, especially fixed rate and on discount home loan products. Many mortgages do allow over payments, but they can incur penalty fee’s if you wish to redraw, some loans will not allow a redraw, and most that do incur penalties or fee’s.
If you need to redraw money before the loan is to be paid off then this can actually cost more than is saved. It may not make sense to pay off a mortgage if there are other higher interest loans to be repaid. It can be a common mistake to carry a high credit card balance, but to overpay your mortgage. It may be a better option to pay your loans and credit cards off first.
