Take a look at any credit card bill and you’ll find a box at the bottom detailing how long it would take to pay off the balance if you only make the minimum repayments, and how much you could save by making extra repayments and paying off the balance in two years. The difference in the amounts can be tens of thousands of dollars.
Now, apply this to your home loan. Use an online mortgage repayment calculator (most lenders have these) to do some similar calculations and shock yourself into seriously considering how to pay off your mortgage faster and save yourself a packet.
Interest charges are money going down the drain, so it’s important to learn how to control and reduce them, especially on your mortgage repayments.
Paying off your mortgage sooner also means you, not the bank, own your home which is a wonderful thing. Here are four tips and tricks to pay off your mortgage faster with little pain to your household budget but plenty of long term gain.
1. Take advantage of current low interest rates
With interest rates at historic lows, now could be the time to switch lenders and refinance at a lower interest rate. Speak to a mortgage broker about how to go about this and the most suitable loans available for your individual situation.
Once you have switched, keep paying the same amount each month you were paying previously rather than the new, lower minimum amount in order to reduce your home loan balance faster.
2. Increase your rate of repayments
If you are making monthly home loan repayments, switch to fortnightly or even weekly so that over a year, you are actually making extra payments. Interest on your home loan is calculated on a daily basis, so you can reduce the amount of interest you pay by increasing how often you make repayments.
By paying fortnightly, you can reduce your loan term by around six years1 while barely noticing the difference to your hip pocket. Due to the way interest is charged, weekly payments can make an even larger difference over the long term.
3. Round up your repayment amount
Even if you are on a tight budget, it’s worth rounding up your payments to the nearest round figure each time. An extra $1-9 per month will make little impact on your lifestyle, but a surprisingly large saving on interest charges over the life of your home loan.
4. Use an offset savings account
If you can link a 100 per cent offset savings account to your home loan, take advantage of this. If your current home loan doesn’t include this ability and you are refinancing, you might look for a loan that does. The way offset accounts work is that every dollar you leave in the account leads to a reduction in the loan amount on which you are charged interest. As an example, if your mortgage is $400,000 and you have $20,000 in your offset account, you only pay interest on $380,000.
Speak with a knowledgeable mortgage broker if you would like to know more about refinancing and pain-free ways to pay down your mortgage sooner and own your home outright faster.
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