Paying off your mortgage faster
Apart from the obvious benefit of owning your home sooner, paying off your mortgage faster can save you money by shaving thousands off your interest payments. There are essentially only three ways to pay off your mortgage faster.
- Find a cheaper interest rate (if refinancing ensure the savings outweigh the costs)
- Make larger repayments than the amount you are required to pay
- Making extra regular repayments
Obtain a mortgage minimisation plan
Get your mortgage broker to conduct an analysis of your home finance and structure a more personalised mortgage minimisation plan that will help you save money and shorten the life of your loan. Simply email us the form on this page or call 13 LOAN (or +61 2 9249 3739 for international callers) and we will return your contact within 2 business hours.
Tips for paying off your mortgage faster
1.Get a low interest rate with a flexible structure
The single biggest opportunity to pay off your mortgage faster is to start by getting the lowest possible interest rate. Shop around with a variety of lenders (credit unions, building societies, banks and non-bank lenders) and compare their interest rates and fees to ensure that you are actually getting value for your money. Some low rate home loans may also not offer flexibility so it is wise to check with your mortgage broker or lender to ensure that you can access features such as the ability to make extra repayments.
2. Know when to refinance
One simple rule of thumb when it comes to refinancing is to ensure that the benefits of a lower interest rate or additional features outweigh the costs of refinancing. Costs associated with switching may include exit fees, application fees, stamp duty, valuation and legal fees.
3.Pay extra from the start
Most mortgages require that you make principal and interest repayments. If you start making extra repayments from the very beginning, the extra payments will go towards paying off the interest on your mortgage thereby reducing your interest bill and shortening the life of your loan. Check to ensure your loan allows you to make extra repayments and if there are any fees involved before settling on a particular loan product.
4. Make your first payment on settlement date
Rather than making your first repayment one month after settlement, make your first repayment on settlement date. This will go towards reducing your interest bill before your first lot of interest accrues.
5. Shift from monthly to fortnightly payments
This effectively means that you will be making 13 monthly repayments each calendar year instead of the normal 12. This will help to reduce both your principal and interest payments by thousands.
6. Ensure access to a redraw facility
A redraw facility will allows you to make extra payments and withdraw them as you need them. A redraw can be used to fund renovations or for a ‘rainy day’. This home loan feature does incur additional costs so it might be worthwhile to first consider how often you are likely to redraw your money before deciding to have this facility.
7. Get a mortgage offset
This is yet another home loan feature that can be used to cut down your interest bill. With an offset, your mortgage is linked to a savings account into which your salary and other cash are deposited. The longer the money sits in your account; it is ‘offset’ against your loans and goes towards reducing accrued interest.
8. Consider a line of credit
A line of credit works like a credit card secured against your home. You have a limit, and provided that you meet your interest repayments, you can pay off as much or as little as you like. In this sense, you could deposit your salary like a mortgage offset. Find out what fees are involved and what your interest rate will be before getting this feature.
9. Home loan portability
Most people do not live in the same house for the entire length of their loan, home loan portability allows you to sell one home and buy another without having to reset your loan thereby avoiding start-up and exit fees.
10. Prepare for unexpected shortfalls
Some lenders will offer an overdraft facility that protect you from unexpected shortfalls that may cost you overdrawn account fees. This is usually linked to your regular transaction account.
More information and home loan help
For more information on how and where to find a better home loan deal from an extensive panel of Australian banks and secure mortgage lenders, or to speak to your local area mortgage expert, contact us on 13 LOAN (direct +61 2 9249 3739)
