How to get rid of your mortgage faster!
It’s easy to become complacent when it comes to your home loan but making extra payments can save you thousands in interest over the years. Here are some simple ways to do it.
Switch to fortnightly payments
If you're currently paying monthly, consider switching to fortnightly repayments. By paying half the monthly amount every two weeks you'll make the equivalent of an extra month's repayment each year (as each year has 26 fortnights).
Make a lump sum payment
Consider putting any tax refund or bonus into your mortgage – but make sure there is no fee with your lender for making extra repayments. Making extra repayments now will also give you a buffer when interest rates rise in the future (which they will!).
Find a lower interest rate
It’s easy to just let your mortgage repayments disappear from your bank account without realising how much interest you are paying. When interest rates go down, banks don’t necessarily pass that reduction onto their customers. Work out what features of your current loan you want to keep and compare the interest rates on similar loans. If you find a better rate elsewhere, ask your current lender to match it or offer you a cheaper alternative. If they don’t, switch banks.
If you decide to switch to another lender, make sure the benefits outweigh any fees you'll pay for closing your current loan and applying for another.
Make higher repayments
- Another way to get ahead on your mortgage is to make repayments as if you had a loan with a higher rate of interest. The extra money will help to pay off your mortgage sooner.
- If you switch to a loan with a lower interest rate, keep making the same repayments you had at the higher rate.
- If interest rates drop, keep repaying your mortgage at the higher rate.
Consider an offset account
An offset account is a savings or transaction account linked to your mortgage. Your offset account balance reduces the amount you owe on your mortgage. This reduces the amount of interest you pay and helps you pay off your mortgage faster.
For example, for a $500,000 mortgage, $20,000 in an offset account means you're only charged interest on $480,000.
Offset accounts usually come with extra fees, so if the balance in your offset account is low it may not be worth the fees you have to pay.
Avoid an interest-only loan
This one’s a bit of a no-brainer. Paying both the principal and the interest is the best way to get your mortgage paid off faster. With an interest-only loan, you only pay the interest on the amount you've borrowed. Your principal does not reduce during the interest-only period, and this means your debt isn't going down and you'll pay more interest.
Disclaimer: This information is for general information purposes only. It is not intended as, or a substitute for, financial advice.