As a homeowner, one of the best ways to save money is to pay off your mortgage. This both frees you from the serious dent to your income each month when your mortgage payment is deducted and can deliver additional equity in your loan that you can use at a later date.
It will depend on your current deal with your lender whether it’s possible to pay off your mortgage faster than the period you signed up to. If you’ve committed to a deal that doesn’t allow you to increase payments, or even make them on a fortnightly basis, you may want to consider refinancing to make this sort of flexibility possible.
On a typical 25-year mortgage, five to eight years of your loan goes to paying the interest charge alone – that’s a sobering thought. So, finding a lender who’ll offer a weekly or fortnightly option can potentially save you thousands of dollars.
You’ll need to assess your current arrangement and, if necessary, work with your mortgage broker to find fresh solutions that suit your current circumstances.
In the meantime, here are a few tips for paying off your mortgage faster.
- Fortnightly payments
By altering your repayment schedule, you can potentially save the equivalent of one month’s mortgage bill each year. Weekly payments make an even bigger dent in the loan but could hurt your cash flow.
- Extra payments
Putting a wedge of cash on your loan will dramatically reduce the amount of interest you’ll pay over the specified life of your loan. Consider setting aside your tax refund, or an annual work bonus, for this purpose.
- Higher payments
Shorten the length of the loan by paying a little extra each month. Not every loan product will let you do this so you’ll need to check if its possible. Some are geared to keep you in the deal for the specified loan period.
- Find the best deal
Most people focus on finding the lowest interest rate. But be careful: you need payment flexibility, and it’s always helpful to access the equity in your loan if you need cash quickly. Sometimes the cheapest deal is not the best deal.
- Offset account
This is a savings or transaction account that’s linked to your mortgage. Its positive balance will reduce the amount you owe on your mortgage each month. That means you’ll be paying less money to service interest, and your loan can be paid off faster.
- Interest-only risks
An interest-only mortgage can looks great because you pay much less each month. But the reality is often different. If you don’t pay down your principal, your mortgage lasts for an eternity so if your goal is to pay your mortgage quickly, this may not be the best option for you. .
- Switching loans – Consider switching loans if you have the capacity and need more flexibility in paying back your mortgage.
- This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.