10 ways to pay off your mortgage sooner

Nothing gives a person more comfort than knowing they have a home to go to. For some that means renting, while for others it means repaying a home loan. And then there are those who already own their home outright, and never have to worry about making a rental or loan repayment ever again.

The peace of mind of owning a home outright should not be underestimated. Having that financial freedom can open up enormous possibilities in other areas of your life. You could:

• Travel regularly to those bucket list destinations
• Provide financial support for your children and parents
• Comfortably buy lifestyle ‘toys’ such as caravans, jet skis, motorbikes and ski season passes
• Build that extension to finish your dream home
• Invest in shares, property or other wealth creation initiatives.

Generally speaking, affording life and growing your personal wealth becomes a whole lot easier.

Most mortgage terms are 25-30 years, and people tend to take that long to pay them off. But it doesn’t have to be that way. There are simple strategies you can use to knock years off your loan term and save tens of thousands of dollars in interest repayments. Here are 10 ways to pay off your mortgage sooner…

Pay lump sums received into your home loan

Got a healthy tax return? A gift from a rich relative? Bonus from a generous boss? If you get a large sum of money given to you, pay it into the mortgage. Several $2,000, $5,000 and $10,000 lump sum repayments over the course of the loan can wipe years off the term and save many times that in interest repayments.

Increase your regular repayments

It sounds obvious, but most people put their minimum loan repayments on autopilot and forget about it. Big mistake! By adding $50 to your monthly repayments you could cut a year or two from your loan term and save thousands of dollars in interest repayments.

Use an offset account

If your loan comes with an offset account, funnel every dollar you can into it. The obvious way is to have your salary paid into it. Any amount in your offset account is deducted from your loan interest calculations. For example, if you owe $300,000 and there is $50,000 in your offset account, you will only pay interest on $250,000. It’s a simple win.

Take advantage of the redraw facility

Many banks offer free unlimited redraws from your home loan, especially if there is no offset account. Simply pay all of your money, including your salary, into your home loan, then redraw as you need it. Interest on a home loan is calculated daily, so the more you have in there at any one time, the less interest you will pay.

Regularly check your interest rate against the market

Check your home loan rate every 18-24 months against what other banks and lenders are offering. If your interest rate is higher than the competition, refinance your home loan. Have a mortgage broker do the research for you, then guide you through the process. That way you can be sure of getting a great deal for your particular situation.

Ask the bank for an interest rate reduction

Have you been a loyal customer? Give the bank a call and ask for a rate reduction. It costs far more money for a bank to acquire new customers than to keep current customers, so they can be accommodating. If they don’t come to the party, contact your mortgage broker. In fact, contact your mortgage broker anyway and find out if you can do better elsewhere.

Keep your repayments the same even if you get an interest rate reduction

If you do secure an interest rate reduction from your bank, or refinance to another bank with a cheaper rate, keep your repayments at the same level as before. Remember, an additional $50 above the minimum repayment amount can shave a year or two and thousands of dollars in repayments from your home loan.

Consolidate your debts

If you’ve got credit cards, car loan and personal loan debts in addition to your home loan repayments, you could be wasting a lot of your money in high interest repayments. Talk to your mortgage broker about consolidating your debts into your much lower interest rate home loan. Repayments on the new consolidated home loan debt will be much lower than the cumulative repayments of those credit card/car/personal/home loan debts, so increase your minimum repayments. And consider losing the credit card to take away the temptation of running up that debt again.

Do you really need those daily treats?

There are many ways you can reduce your daily living costs. Do you really need 2-3 coffees per day from the local barista? Can you do without your Sunday morning avocado on toast? Can you take your lunch to work instead of buying every day? Can you ride your bike instead of driving the car (and potentially paying parking costs)? The savings could equal $100 per month, and if you pay that off your loan, you’ll save several years and thousands of dollars off your loan.

Consider splitting your loan

At the moment many banks are offering fixed interest rates lower than variable interest rates. Perhaps you could split your loan so you’re paying some at the lower fixed interest rate, and some at the variable interest rate that is linked to an offset account. Speak to your mortgage broker to see if this could work for you.

Just using one or two of these strategies could save you several years and many thousands of dollars in interest repayments. Imagine what could be achieved if you applied five of these strategies…or even more!

Book a no obligation appointment with me by filling out the contact form on the right, and remember my service is no cost to you, as I’m paid by the lender you choose. At the end you’ll know exactly where you stand and what you can do. Knowledge is power, so make sure you have it.