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Monday, November 10, 2014

Mortgage: How to Eliminate or Reduce Your Debt 

If you are having difficulty paying off your mortgage, here are some tips:

1. Refinance to a lower interest rate.
If you plan to live in your home for 3 years or more, and your mortgage is $100,00 or beyond with an interest rate of 5 per cent or higher, ask your lender for the most favourable refinancing rate. Compare such rate with rates from banks which you already have accounts with. You can also choose to work with an independent loan broker to find the lowest rate. Reducing your interest rate from 0.75-1% can make a huge difference.

2. Refinance to shorten the time frame of your mortgage.
Refinancing, say a 35-year fixed rate home loan to 20- or 15-year mortgage is becoming very popular. The low rates nowadays allow you to do so, while keeping your monthly repayment a bit close to the current amount. For example, you've been making repayments for a 30-year, 6% fixed rate loan of $200,000 for 5 years; if you refinance to a 15-year, 2.87% fixed rate home loan, your monthly payment will increase by only $80 or less. And you can pay off your home loan 10 years earlier, establish equity faster, and save more than $100,000 in interest!

3. Make a lump-sum payment.
If you're given an inheritance, tax refund, or gained a big amount of money in other ways, use some or all of this money to your principal balance. Making a lump-sum payment is one of the best ways to reduce debt, because you're not required to make a higher repayment each month. Making a one-time $5,000 payment on a 30-year, 4.5 per cent fixed rate loan of $225,000 for example, could save you more than $13,000 in interest as well as reduce your payment term by 15 months. Contact your loan issuer to verify if your mortgage doesn't have pre-payment penalty. If your loan has such penalty, you could be charged with a fee, often 1 per cent of the home loan amount.

4. Round up your payment.
However little the amount -- even if it's only $20 every month -- you pay for your principal, this amount could help you save in interest. Say for example, you have a monthly payment of $900, if you round it up to $1,000 by adding in $100, you can pay off your loan more than two years early. This is a great strategy to apply if you have little additional cash, or if you have already refinanced your home loan or you do not qualify for refinancing.

If you want to get free advice on mortgages, credit cards, and other financial concerns, visit cclswa by clicking on the link given.

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