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Mortgage Matters Part 3: How to pay back your loan faster in 2016

2016 has now arrived, and as the New Year comes you might be turning your attention to your long-ignored mortgage.

Although no one likes to think about their mortgage repayments, you need to analyze it regularly if you want to find ways to make your repayments more effective and move yourself closer to financial independence.

With that in mind, bring in the New Year with these 5 handy ideas from realestate.com.kh to speed up your loan repayments, and work towards a financially free future!

1. Don’t automatically decrease your repayments just because the interest rates falls:
For many loaners, as soon as bank fees and interest rates decrease, and minimum repayments are lowered accordingly, this immediately means a happy camper – with more money in the pocket and less for the bank.
However, this is short sighted.

Instead of pocketing the cash, if you keep your repayments at the same level when the interest rates are falling – because this is a prime opportunity to reduce your principle with each payment and make faster progress satisfying your total loan in the longer-term.

As opposed to seeing it as a time to relax your repayments – this year you should see it as an opportunity to get ahead of the bank and pay back your principle faster.

2. Test out an “Offset Account”:
If it is possible for your loan, try using an offset account. A mortgage offset account is directly connected to your mortgage and the payable interest on your mortgage month to month will be calculated by deducting what funds exist in your offset account against your loan.

To clarify, here’s an example: if your total mortgage is $200,000 and your offset account currently has $5,000 in it, you will only pay interest on the remaining $195,000.

An offset account allows you to save interest while still allowing access to your savings if needed. For investors, offset accounts are also useful for the preservation of mortgage tax deductible benefits.

3. Refinance and get a better run for your money:
Maybe you have worked out that your current mortgage is not suitable to your needs and financial circumstances now that 2016 has dawned.

If this is the case, you need to change your loan quickly before it seriously hurts you. If you are not sure your current mortgage is right for you, it is best to consult a professional finance broker before it is too late.

A well-attuned broker will negotiate with your lender about fees for additional repayments, refinancing, or any other necessary measures to help you save on your loan. A good broker should identify the perfect terms for you and then negotiate the best rates for that plan.

4. Make smaller mortgage repayments, more regularly:
If you make more payments, naturally these payments will be smaller. But more regular payments, even if they are smaller, will mean ultimately you can pay off your loan faster because you will lessen your interest repayments in the long term.

If you currently repay your mortgage on a monthly basis, try changing to fortnightly loan repayments.

Now, your monthly mortgage repayments might equal $2000 per month, for example. If you can instead pay $1000 every two weeks, by the end of 2016 you would have made significant savings on your interest costs, and will be a little bit closer to satisfying your overall loan repayment.

5. Take measures to pay back a little bit more each time:
Remember, your “minimum repayment” is exactly that: it is the least possible amount you need to repay each month.

So, for most mortgages there in nothing stopping you from paying more than the minimum necessary payment. And it doesn’t matter if you pay extra regularly, just when you can afford to now and again is still worthwhile. Even a little bit here and there can add up and eventually reduce your mortgage.

When you receive bonuses, tax returns or other monetary gifts you should seriously consider putting this expendable income into your mortgage repayments before it disappears into thin air.

Enjoyed this advice? Learn more about home loans and mortgage repayment advice on realestate.com.kh/news today, Cambodia’s leading real estate news source.

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