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How to reduce your mortgage

People keep telling me that paying off your home is very tax-effective and with interest rates rising all the time, I want to get rid of my mortgage as quickly as I can. Have you got any ideas of how I can do this?

Some experts argue that there are better and more tax-effective strategies, but these often involve more complicated tax and investment structures. However, I love the ‘paying off the house strategy’ because it is something that many people can do.

For example, bumping up your repayments on a 25-year $100,000 loan at seven per cent by just $20 a week will cut the loan by five years and save almost $30,000 in interest. How good is that? The more you throw in, the more you save. You can also get a redraw facility which means the extra you pay in can be withdrawn if you need it.

Another reason why I love the ‘pay off your house’ option is that your home is capital gains tax-free while other investments trigger this tax when you sell them. Some smarties buy old homes in good areas and do them up over three or five years and sell them to pocket the capital gain tax-free. The lender e-Choice once put out the following 10 tips to pay off your home quickly:

  • Hit the principal early
  • Pay fortnightly
  • Use mortgage offset
  • Save a bigger deposit
  • Pay loan fees upfront
  • Stick to a budget
  • Forgo minor luxuries
  • Make extra repayments
  • Pay your tax refund into the home loan
  • Monitor rates and shop around.

Mortgage brokers can help you find lower interest rates, but make sure they actually save you money.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 

Published on: Wednesday, November 18, 2009

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