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Tips To Pay Off Your Mortgage Faster

Pay Off Your Mortgage Faster

With interest rates at an all-time low of 0.1 per cent, now is a great time to review your loans and pay off your mortgage faster. Your mortgage is generally the biggest expense of your lifetime. With rates so low, a decrease in interest rates may not sound like significant drop, but over the course of a 25 to 30-year loan, saving a few dollars here and there with compounding interest can build up to a lot of money saved. If you do not shop around for better interest rates and do not know how to make your loan work to your advantage you could be literally throwing money away. These costly mistakes could add up to thousands of dollar and extra years on the life of your home loan.

So, here are our top 3 tips for paying off your mortgage faster:

1. Shop Around For A Better Interest Rate – Pay Off Your Mortgage Faster

Shopping around and comparing hundreds of home loans is not as simple or easy as looking at the rate. It is vital to look at the whole home loan package, what features it offers and how these meet your needs. Good advice from a Mortgage Broker will help do this for you. Their personalised assistance helps provide competitive choice and the reassurance that you have what you need. Refinancing to get a competitive rate can make a big impact on the total interest you pay over the life of a loan. It pays to shop around – it can help pay off your mortgage faster.

2. Increase Your Repayment Amount and/or Frequency – Pay Off Your Mortgage Faster

Increasing your repayments, even slightly can make a big difference to paying off your mortgage faster.

On a $550,000 loan over 30 years, at 2.2% interest, paying an extra $200 per month could save you over $25,000 over the term of the loan and 3 years 6 months in time[1].

Make you mortgage your focus, every little bit of money you pay off your loan counts. By putting any extra income from bonuses, your side hustle, financial windfalls etc. into on your home loan you could be mortgage-free a lot sooner.

Increasing the frequency of payment, such as paying weekly instead of monthly or paying a lump sum when you can, will all help. Interest on a home loan is calculated daily therefore making repayments more frequently may help reduce the interest you pay over the duration of the loan.

3. Use An Interest Offset Account – Pay Off Your Mortgage Faster

Offset accounts enable all your spare funds to reduce your home loan interest every day. Instead of your lump sum sitting in a bank account earning little or no interest, these funds are saving you interest at your current home loan interest rate. These types of accounts do require some financial discipline, so if you see “available funds” and get tempted to spend reconsider! The benefit of these types of accounts is that the funds help to reduce your interest bill (thereby helping your to pay off your mortgage faster), but are still available to you in an emergency. To implement this strategy, you need a loan that has this feature.

Using the same example as above ($5500,000 loan, 2.2% interest, over 30 years), if you were to put $100,000 into an offset account 5 years into your loan after an unexpected windfall or inheritance, you could save over $61,000 in interest and 2 years and 4 months off your loan[2].

The added advantage of using offset accounts is that you do not EARN interest on the money, you SAVE interest. Its highly likely that the interest you earn would be less than the interest you pay on a home loan, therefore as a net benefit you are likely in front.

For example, if you had your $100,000 in 1-year term deposit earning 0.9% interest you would earn $900 at maturity. If you earnt $95,000 per year you would pay 37% tax plus 2% Medicare Levy on that income or $351. Making the net benefit of the term deposit $549 over the year. However, if you put that in your offset account, using the same loan example above, you would save yourself over $2000 in interest in the first year.

Get in contact

For mortgage advice get in contact with Watson Mortgages and let us find you a competitive rate 0240381623.

[1] Calculated using https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/mortgage-calculator#!how-much-will-my-repayments-be calculators
[2] Calculated using https://www.ing.com.au/home-loans/calculators/offset.html calculator

Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product
Licensing Statement: Credit Representative 525053 is authorised under Australian Credit Licence 389328.

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