Mortgages have been used by many of the financial greats as a form of leveraging finance. If carefully managed, they can be amongst the best tools to help you really make a difference financially. They can, however, also send you off the other way if you are not careful with them. The advantage is that the interest rate is relatively low because the loan is secured. The problem is that this advantage is quickly dissipated if you only pay the required amount.
What smart people do is to put in as much as possible into their home loans. Holiday in Cabo? No, they push their bonus check into the mortgage. It may seem like they are having less fun in life but the financial freedom that comes from this outlook is very freeing. By sacrificing a little today, they save a huge amount for tomorrow. Enough to turn the week in Cabo to a round the world trip.
The key is to get smarter with your money. What money do you have left over after all the essentials are taken care of? Is there anyway to reduce the essentials? What spending habits can you cut back on? Even if you start by saving a dollar a day and work on that, you will instill a regular savings habit that will soon become entrenched. It only takes 3 weeks to break a bad habit.
In answer to the question of how much should your increased installment be? As much as possible. If you have access facilities on your loan, store any disposable income in their until it is needed. It is a great place to keep your emergency fund – not only is there no worrying about paying tax on the proceeds, but you save more interest than you could possibly ever earn.
When you have this savings mindset, you will start to find ways to put in any extra amount possible. First prize is to double your installment, but start at any level you are able to now – the point is to just start. And look at your other debt while you are at it. What interest rate are you paying on your credit cards.
Pay your extra funds into these and then cancel them and then you will have plenty of money to put into the home loan. And beleive me, you will not believe how much money you save by not having credit cards – it is much easier to impulse buy using a credit card than it is with hard cash.