Debt Management: Paying off Your Mortgage Early

Debt Management: Paying off Your Mortgage Early

Paying off Your Mortgage Early and Still Having a Life

So you want to pay off your mortgage early, but you don't know how to go about it? Let's take a look at your options.

I assume that you have a mortgage and that you do want to get rid of that death pledge'* as soon as is practicable.

Your first job is to understand your personal cash flow really well. It's no good trying to pay your mortgage off, if you don't know where all your money is, where it's going, what expenses you have and what income is coming in. So, make sure you are up to date there.

Have you made sure that you have protected yourself against any unfortunate circumstance? Do you have Life, Income Protection, Medical and Trauma insurance? Are your Home, Contents and Vehicle insurances all up to date? It sounds a bit morbid, but it's essential that you have these things, just in case. If your plans to repay debt are upset because of any such events, at least with insurance you can complete your plan.

So you've got your cash under control and you've got insurance. You can now start to think seriously about repaying that mortgage early.

One thing you might do is transfer all of your short term debts (credit cards, time payments, car loans etc), and if possible put these debts onto a home loan. Talk to your financial advisor to make sure you've got a plan to do this properly.

By increasing your mortgage repayments (if you are able to), you can repay your mortgage in a much quicker time period. For example; a $150,000 mortgage on a 25 year term at 6% interest has a monthly mortgage repayment of $966.45. Over the 25 year period you'll actually pay $289,935.63. If you increased your repayments by only $25 per week ($108.33 per month), you would reduce the term of the mortgage by up to 5 years and save yourself over $32,000 in repayments.

And you could do even better if you got a little more sophisticated and ran your mortgage as your cash managing account and had all your income deposited into it. I have seen people repay their entire mortgage using this system in fewer than 7 years!!!! And they have still enjoyed a great lifestyle. You don't have to change banks to do this, so again talk to your financial advisor to make sure you are able to use this type of system . . . then go for it!

*Death pledge (mortgage) is a term that comes from old French words, mort, dead' and gage, pledge'.

For more financial tools, easy-to-use money calculators, and free financial advice visit Barry Kloogh at http://www.TheMoneyCookbook.com?money_tips. Barry Kloogh is the author of The Money Cookbook, and a top financial adviser with offices in Dunedin, New Zealand and the United States.

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