Tips for paying off your mortgage faster
A home loan mortgage is the biggest debt most people will ever have. And while 25- or 30-year loans are usually manageable – especially after the first few years where you may need to make sacrifices in other spending – there are big incentives to paying off your mortgage faster.
Just knocking a few years off your loan period can save you many thousands of dollars in interest and fees.
Of course, the bottom line is that you can only pay off your loan faster if you put more money in. And while many borrowers are already close to the limit of what they can afford, there are a few simple ways to repay faster in ways that you’ll barely notice.
Make payments more often
This one’s pretty easy. Interest is calculated on the size of your debt. So if you pay down your loan with more frequent payments, you’ll often have a slightly lower loan debt at the time the interest is calculated.
Shift your repayments from monthly to fortnightly (or even weekly if your lender offers that option).
If your repayments are $2500 a month, cut it in half and pay per fortnight: $1250 each time. While there are 12 months in a year, there are 26 fortnights. So not only will you progressively have a lower debt, but you’ll end up making slightly higher repayments each year: in this example, you’ll pay $32,500 off the principal of your loan rather that $30,000. And you’ll barely notice it.
Push up your ‘minimum’ payment
Consider adding just a bit extra to the minimum repayment amount required by your lender. If your lender wants $1285 a fortnight, pay $1300. Or $1320. Stretch yourself a little bit and the long-term impact could be significant.
Pay unusual or unexpected money into your loan
Every now and then, if we’re lucky, a little bit of extra money comes our way. It might be a 3% pay rise, a $1000 tax return, an inheritance, a $50 birthday gift from your uncle, or a bonus.
If you didn’t have the money before, you won’t miss it. Slap it all straight onto your loan debt.
Don’t reduce repayments when interest rates drop
At the moment, interest rates are about as low as they can go, but over the life of a loan, they’ll fluctuate. If you’re paying your $1250 a fortnight and rates drop, keep paying $1250. You managed before, so why not stay ahead?
Over the life of your loan, interest might also drop away as you pay off more of the principal. Try to keep the total amount you pay the same; it means you’ll be paying off the loan even faster.
Consider an offset account
A mortgage offset takes into account any money you have in a regular transaction or savings account. If you have a $600,000 mortgage and $15,000 in your regular bank account, your interest payment is calculated taking that savings amount into consideration.
Paying interest on $585,000 is better than paying on $600,000. This is especially useful if your linked account is where your regular income is paid into. And, of course, you still have access to the cash if you need it.
Make sure your loan is right for you
The reason there are hundreds of different loans available in Australia is because borrowers have different circumstances, priorities and goals. Pay off the mortgage fast? Keep cash on hand for emergencies? Pay private school fees? Travel more? Buy an investment property?
At Mortgage Broker Melbourne, we take your financial situation and your home loan goals into account when helping you choose a loan to suit you. And if your situation changes, we can help you adapt by scouring the loan market for a great deal for you.
Talk to us
Contact the Mortgage Broker Melbourne team and we’ll help you find a great loan for you, and give you more tips on paying off your loan faster.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!