Successful property investment advice can yield significant returns.
However, cost of living increases and rising interest rates necessitate a more focused approach when you’re trying to pay off your mortgage faster.
Identify your goal first
Before we jump straight into tips to pay off your mortgage faster, the first point to consider is – what is your long term goal… paying off your mortgage, or investing?
We understand that for many people, they simply want peace of mind… and being mortgage free will undoubtedly help to achieve that.
Also, paying off your home loan as quickly as possible will help reduce the total amount you spend on interest, but it’s not necessarily a bad thing to maintain your mortgage for its full term if you put those additional funds to good use.
See this insightful article about investing vs paying off your mortgage. Once your goal is clear, and you’ve decided that paying off your mortgage as quickly as possible is your strategy, then read on for some tips on how to achieve that.
1. Consider bi-weekly payments
Most home-owners pay their mortgage on a monthly basis, but making fortnightly payments can be an effective way to reduce the amount of interest you pay over time. By paying half of your mortgage payment every fortnight, you’ll end up making an extra month’s worth of payments each year.
This method works because you’re essentially making one additional mortgage payment per year, which can reduce the life of your loan and save you thousands in interest. In addition having more money sitting in your loan for longer reduces your interest cost.
2. Refinance to a shorter-term loan
Refinancing to a shorter-term loan can can be a tempting way to pay off your mortgage faster and save you thousands of dollars in interest. But remember if you do refinance to a shorter-term you will be locked into making higher repayments and if your financial circumstances change you might find making those repayments difficult.
Instead, use an online mortgage calculator to work out what repayments you should make to repay your loan over your desired time period. Then voluntarily make those repayments, you could potentially save thousands of dollars in interest.
3. Redraw facilities and offset accounts
If you already have a stop spending – start saving attitude, this part won’t be hard at all!
Redraw facilities and offset accounts are similar home loan features that enable you to reduce interest charges on your loan balance by offsetting your loan with extra funds.
A redraw facility allows you to make additional repayments and withdraw the funds later, while an offset account is a separate transaction account linked to your home loan, which offsets the balance of your loan.
Keep in mind that while the balance of a redraw facility reduces your loan balance, the funds in an offset account are separate, and your lender will calculate the interest charged on your loan balance minus the offset account balance.
4. Fixed vs variable rate loans
Both variable and fixed-rate loans have their advantages and disadvantages. For those who wish to repay their loan faster, a variable rate loan may be preferred due to its flexibility, allowing unlimited extra repayments at no cost.
While those with a fixed-rate loan can switch to a variable rate after the fixed term ends, early exit fees may apply.
Another option is to split your home loan between fixed and variable rates. However, be aware of possible limits on extra payments for fixed loans.
Need mortgage and financial planning advice?
At First Financial, it is our passion to help Australians save money when times are tough, and support their journey to a happy retirement.
When planning your retirement, aiming to pay off your mortgage as fast as possible is a great strategy.
Contact us to discuss your unique goals, and we’ll help you make the right decisions to achieve them.
