How to Pay Off Your Mortgage Faster with these 6 Simple Tips
Getting ahead on your mortgage can reduce your debt and pay off your mortgage faster. But how to pay off mortgage faster in Australia? Here are our 6 simple tips to help you find ways to save and pay more money off your home loan sooner.
6 Tips to Pay Off Your Mortgage Faster in Australia
Pay your mortgage off faster with these 6 simple tips:
1. Find a lower interest rate to pay off mortgage faster
If you haven’t reviewed your home loan with a mortgage broker recently, you could be paying too much interest on your mortgage. Finding a lower interest rate gives you the ability to pay off mortgage quicker because you are not charged as much interest. It also makes our next few tips even easier to achieve.
Finding a lower interest rate doesn’t have to be hard or a lengthy process for you. Asking an experienced mortgage broker to help you review your home loan is the easiest way to understand if you are getting the best deal on your home loan. A lower interest rate than what you have currently will allow you to save on interest charged on your mortgage amount and means you can pay down your debt faster.
2. Make extra repayments to pay off your mortgage faster
Any time you have money come your way, consider making an extra repayment on your mortgage. It could be a tax refund, monetary gift or selling items around your house for extra cash. Any amounts made as extra repayments off your home loan will save you interest and help you pay your mortgage off faster.
Did you know on a principal and interest home loan of say a 25-year loan term, the first five to eight years of repayments is simply going towards paying off interest? Any extra repayments you can make in those first years of your home loan will reduce your interest and will pay off your mortgage quickly.
Importantly, if you have a variable interest rate, paying extra repayments now can also build a buffer into your loan if interest rates rise.
3. Increase your regular repayment amount
Found a loan with a lower interest rate? When you switch, consider paying the same amount as your past repayments at the higher interest rate and you’ll pay your mortgage off in less time! Likewise, if your variable interest rate drops, you can choose to continue paying off your loan at the higher amount, if you lender allows it. Regardless of interest rates, you can usually choose a regular amount for your repayments to be higher than your minimum monthly repayment amount. Any extra regular contributions will make a difference to the life of your loan.
4. Make the switch to fortnightly payments
Simply by changing the frequency of your repayment will help you pay off mortgage faster! If you pay your repayment monthly, you can switch to fortnightly repayments. This is not paying any extra amounts, just splitting your monthly amount into two fortnightly payments.
By paying the monthly repayment amount in fortnightly instalments instead of once a month, you will make the equivalent of an extra month’s repayment each year (26 fortnights instead of 12 months). This extra money each calendar year will help you in paying down your mortgage debt quicker.
5. Consider a home loan with an offset account
Some loan products include an offset account, which is a savings or transaction account linked to your mortgage. The balance in your offset account reduces the amount you owe on your mortgage. By reducing the total amount owed, you pay less interest, which in turn can help you pay off your mortgage faster.
6. Avoid taking on an interest-only loan to pay your mortgage off quickly
When deciding on a home loan lender and mortgage, some people opt for an interest-only loan for a range of reasons. If you are wanting to pay your mortgage off as quickly as possible, your best option will be to choose a loan that has both principal and interest owing each month.
With your typical home loan, you pay off the principal (an amount of the actual amount borrowed, paid monthly) and interest charged for that same period. But, with an interest only loan you pay only the interest charged for the amount borrowed. Your principal doesn’t reduce during this time so when you interest-only period ends, you need to pay the whole amount you borrowed, plus you will continue to pay more interest. This is the opposite of paying your mortgage off faster, so if that is your goal, avoid an interest-only loan.
Ready to pay your mortgage off faster?
Contact us today and we can help you with finding a better interest rate, liaising with your lender about your possibilities of changing repayment amounts or finding the best loan features for your financial goals.