Daimien Patterson is the CEO of Integrity Property Investment, a property investment company based in Australia. He regularly produces books, blogs and videos on the topic of property investing, helping thousands of people create financial security and freedom through education and property investment. Get started today.
My Property Investment Tip #28
How To Pay Your Loan Off FAST!
So as promised my next tips will be on how to pay your house off FAST. I have 7 methods to share (one per day), and they are all legal ? so stay tuned!
Method 1 of 7. Pay an extra $100 per month on your loan.
Now they say putting an extra $100pm on an average mortgage can wipe off 5 years from your 25 year loan.
Sounds far fetched doesn’t it? But it works. Here’s how.
Your monthly loan repayment is made up of 2 elements. The Principal (which pays down the debt) and the Interest (which is dead money that goes to the bank). It’s the principal that pays off the loan!
So if you have a monthly repayment of $2,500 pm, $2000 of that may be interest and the other $500 is Principal.
So… if you increase your payment by a mere $100 pm, it would seem insignificant against a $2500 payment, but it’s actually $100 of PRINCIPAL on top of the $500 (not the full $2,500).
So that’s a 20% increase in the speed that your mortgage will be paid off! Hence you’ll shave 5 years off the 25 year loan.
You also need to consider on top of that the compounding effect of paying the loan off faster means you’ll be charged less interest than expected and that will also speed up the process because more of your repayment will go towards the principal element and less will be consumed by interest charges. Powerful stuff.
Now of course a $2,500 repayment would be for a pretty modest mortgage. So you may need to scale that up a bit if your mortgage payment is much larger.
And indeed if you want to smash that mortgage faster.
I guess the key realisation here is that it doesn’t take much extra to make it go faster. Because it’s relative to the Principal element of your payment, not the whole Principal & Interest amount.
So there you have it. If your goal is simply to pay off the loan you have, increase your principal repayment as much as you can. You’ll be very surprised at the results.
If you want to work out how much principal vs interest you’re paying now, just go to your loan statement and subtract the monthly interest charge from the monthly payment. What ever is left over is your Principal amount. So if that’s $500, up your repayment by $100pm. If it’s $1000, up it by $200 pm. The more the better of course.
Let me know your thoughts below ?
Stay tuned for the next 6 methods. Yes there’s six more. Imagine how fast you’ll do it if you apply all 7.