An Introduction into Mortgage Reduction

A mortgage is very likely the biggest financial commitment you will ever make. How many times have you heard someone say, "We don't actually own our home, the bank does!" If you're one of those people, you've probably thought about how incredible it would be not have to say that any more. To own your home outright is a dream and a goal many of us have. Yet how many of us truly believe it's something that will likely happen in the not-too-distant future?

We're here to tell you that it is possible, and that you can start working toward this goal from today. There are some major success factors which contribute to owning your own home sooner, and what could be better? Eliminating bad debt (that which isn't providing any income or tax benefits) feels good,  just ask anyone who's finished paying off a blown-out post-trip credit card bill, a HECS (check this) debt or car loan.

To anyone paying a mortgage, the idea that you can own your own home is very enticing. It's a huge psychological boost, providing security and freeing up money so you can do other things.

So how can you really pay off your mortgage faster? Should you re-finance? Will extra features, such as a redraw facility, mortgage offset account or a line of credit help you? Or should you go for a basic ?no frills? loan instead, and make additional payments whenever you can?

While certainly times have changed and people are more prepared to use debt to improve their financial situation, it is still a dream for many Australians to be able to one day own their own home outright. Unfortunately the trend seems to be going the opposite way, as today's home loan is not the same home loan as generations past.

Firstly, property values have gone up in proportion to wages, so affordability has decreased. Home loans are therefore, as a whole, larger than they've ever been, out of sheer necessity. In some areas of Sydney a home loan upwards of $600,000 is normal.

Secondly, a home loan is not just a home loan any more. In reality, it is the sum of what will be borrowed on the house. Your house needs a new bathroom in a few years? time. Where will you get the funds? If you're like most people, you don't have a extra $40k stashed away ready for the next renovation, so you'll likely draw it out of the house using your line of credit. How about a second storey? Again, you won't necessarily have access to the funds at the time you require them, so you'll tack the bill onto the home loan. There's no doubt about it, the home loan is changing, thanks to a number of factors such as our increasing appetite for material goods and the low affordability of housing today.

With this in mind, it is more important than ever that individuals put effort and time into ensuring they are doing what they can to reduce their non-income producing debt. Avoiding a situation where home loans are extended (potentially until retirement) should be made a priority.