02 Aug How to Pay Off Your Mortgage Faster
Whether you’re a new homeowner, or you’ve had your mortgage for a while, you’re familiar with that feeling of looking up at a tall mountain to climb. You’ve borrowed a big sum of money to buy your home, and you’ve got many years ahead in which you’ll be paying it off. Don’t despair though, you’re on the property ladder, you’re investing in your future and you’re the proud owner of your own home!
If you want to shorten the time spent paying off your mortgage, there are a few steps you can take. A shorter mortgage means your house will cost you less in the long run, because you won’t spend as long paying interest on it.
We’re not financial advisors, so we’d definitely recommend you see one of those to analyse your personal situation and advise you the best way to shave time off your mortgage. But here are a few things you could start thinking about, and even ask your financial advisor about when you have a chat.
Implement Savings Measures
Remember when you were saving up for your deposit? Every dollar counted, you thought twice about whether you needed that extra cup of tea, you cut down on the extravagant lifestyle. Try and implement some of that stringent spending into your daily life now, even if it’s for a limited period of time. Then take those savings and put them towards your home loan each month.
It doesn’t have to be a huge amount extra paid off each month for you to enjoy big rewards. A hundred or two hundred dollars extra each month can significantly reduce the interest you pay over time, and the length of your home loan.
You can use this handy calculator from Canstar to figure out how much you can potentially save on your mortgage payments by paying a bit more each month.
Regularly Review Your Interest Rates
Different loan providers will have different packages, and one of the most important variations between them is the interest rate. Just a few decimal points difference can make a huge change to your mortgage payments over the years. There are huge discrepancies between the interest rates of the home loans available in Australia, so we’d suggest regularly reviewing your home loan to make sure the interest rates match the current market conditions.
Something as simple as a phone call to your lender can result in a dropped interest rate, you just need to be proactive and make that call. Alternatively, you could schedule a meeting with a mortgage broker who would review your current loan and make suggestions accordingly. It pays to shop around, just remember you don’t have to be locked into a home loan if it no longer suits you.
Make Your Payments Fortnightly Instead of Monthly
Increasing the frequency of your payments could help you reach your home loan payment goal a lot faster. If you’re paying monthly, instead try paying half the monthly amount every two weeks. There are 26 fortnights in a year, which means you’ll pay an extra month of your mortgage off every year, as in effect you’ll be making 13 monthly payments in the calendar year.
Use an Offset Mortgage Account
An offset account is a useful tool to reduce the interest charged on your home loan. It’s basically a transaction account that’s linked to your home loan account, that you use for deposits and withdrawals as you would a normal transaction account.
The difference with an offset account is that the money you store in there counts against the interests charged on your home loan. The more you have in your offset account, the less interest on your home loan you’ll pay. A simple example would be, say you have $250K owing on your mortgage, and you have $50k in your offset account. Your interest charge would only be on $200K, ie the 250 minus the 50 in your offset account.
Make Lump Sum Payments
Occasionally we come into a lump sum of cash, be it through an inheritance, a work bonus or a tax refund. Chances are, you’ve lived your life and managed your cash flow successfully without this extra money. It’s an addition that isn’t vital to your survival, and one way of really maximising the returns from it is to put it towards your home loan as a lump sum. The lump sum would come directly off your loan balance, accelerating your loan reduction instantly.
We hope that helps you with some ideas to pay off your mortgage faster. We’re real estate agents, not financial advisors, but the real estate experiences of your clients is extremely important. To custom an approach directly adapted to your financial situation, book in an appointment with a financial advisor and see what they say.
If you have any questions about real estate in Brisbane or across Australia or would like a professional opinion on the value of your home, please get in touch with The Henry Wong Team®. Henry would love to chat with you personally.
*Disclaimer: Not financial advice. Please speak to a financial professional about your specific situation.*