How to pay off your mortgage faster
Act now – you pay most of the interest up front
Most mortgages are structured so that you pay mostly interest in the early years. If you are serious about wanting to reduce the interest you pay on your Home Loan, you’ll need to act sooner rather than later.
Get rid of car loans and credit card debt
You’re generally paying a higher interest rate on small loans (e.g. a car) and your credit cards so it makes sense to eliminate those debts first. So, put a rein on your credit card usage and then tackle your mortgage.
Make sure you’re paying off the right mortgage
When you entered the mortgage market, you might not have been as well informed as you are now. Or the market might not have been as competitive. Stay in close contact with your trusted Mortgage Broker. They can let you know if there is a new home loan product that will save you money over the term of the mortgage.
Flexible mortgages
Most debt related retirement strategies depend on you being able to pay off more of your mortgage sooner. Read the fine print or talk to your trusted Mortgage Broker to see if you have the flexibility you need to reduce your interest charges.
Pay more and pay often
Want to pay off your mortgage early? Then make bigger mortgage repayments, more frequently. You’ll own your own home sooner and save a bundle on interest.
Assuming you have a mortgage that lets you pay extra, you should pay more and pay often. The interest charged on a $300,000 home loan at a rate of 7.15% over 30 years with monthly repayments is over $420,000. By paying off an additional $50 a month, you’ll reduce the interest bill by $39,000 and your loan term by 2 years and 4 months. You could look at making repayments weekly or fortnightly rather than monthly. Over 30 years the savings add up. To learn more, talk to your trusted Mortgage Broker today.
When was the last time you looked closely at your loan, the progress you are making on paying it off and how it compares to others in the market? Analysing your mortgage could mean savings for you, as well as the opportunity to pay it off more quickly, invest in other assets or reach financial freedom sooner.
Make smaller payments, more often
To cut the size of your payments, make more of them. This could even see you pay off your loan faster, and therefore pay less interest overall.
If you pay your mortgage monthly, consider changing to fortnightly repayments. For example, if your mortgage equates to $2,400 a month, cut this in half and pay $1,200 each fortnight. As well as having more manageable payments to make, by the end of the year you will have paid off $31,200 rather than $28,800.
Pay just a little bit extra
A minimum repayment is just that – for most loans there is no reason you can’t pay more, whether here and there or regularly.
By rounding up to a full number or contributing an extra $100 or even $10, you’ll significantly reduce your mortgage. It may also be worth considering putting all bonuses, tax returns and gifts into your mortgage.
Don’t decrease repayments when interest rates fall
Even if your repayments are lowered when fees and interest rates decrease, it doesn’t mean that’s all you have to pay and, by keeping your repayments at the same level when interest rates are lower, you will pay down more of the principle with each payment and make speedy progress on your home loan.
Offset it
If you can, use an offset account. A mortgage offset account is linked to your home loan and the interest payable on the loan from month to month is calculated by deducting what is in your offset account from your current loan. For example, if your mortgage is $500,000 and your offset account has $10,000 in it, you will only pay interest on the remaining $490,000.
An offset account will save interest while still giving you access to your savings. It also means investors can preserve the tax deductibility of the mortgage.
Find a better deal
Ultimately, your mortgage needs to suit you and your circumstances, or you will wind up paying too much. If you think your current loan no longer matches your situation, speak to your trusted Mortgage Broker. They will be able to find the right product for you, as well as negotiating appropriate interest rates on it.
Of course, it is important to make sure that your lender doesn’t charge fees for extra repayments, refinancing, or any other steps you take in an attempt to save on your loan. Your trusted Mortgage Broker will be able to provide details and make sure you have a loan that lets you pay down your balance sooner.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.