The best tips for paying off your mortgage faster
Last updated on May 25th, 2023
Accelerating Mortgage Payoff: Top Tips for Australians
Purchasing a home is a significant milestone, and for many Australians, it involves obtaining a mortgage. While mortgages allow you to become a homeowner, they also come with the responsibility of repayment over an extended period. However, paying off your mortgage faster can provide financial freedom and peace of mind. In this article, we will explore some practical tips that can help Australians accelerate their mortgage payoff and reduce the burden of debt.
- Make Extra Repayments: One of the most effective ways to pay off your mortgage faster is by making additional repayments whenever possible. By increasing your regular repayment amount, you can significantly reduce the loan term and the amount of interest paid over time. Consider allocating any extra income, such as bonuses or tax refunds, towards your mortgage. Additionally, even small extra payments made consistently can make a significant impact on the overall loan balance.
- Utilize an Offset Account: An offset account is a transactional account linked to your mortgage, helping reduce the interest charged on your loan. The balance in your offset account is deducted from the outstanding mortgage amount when interest is calculated. By depositing your savings and income into the offset account, you effectively reduce the interest charged on your loan. This method allows you to maintain access to your funds while simultaneously reducing the interest payable and shortening the loan term.
- Consider Refinancing: Keep an eye on interest rate fluctuations in the market. If interest rates have dropped significantly since you took out your mortgage, refinancing can be an excellent option to consider. By refinancing your mortgage to a lower interest rate, you can potentially save thousands of dollars over the life of the loan. However, carefully evaluate the associated costs, such as exit fees, application fees, and ongoing fees, before making a decision.
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- Increase Loan Repayment Frequency: Switching from monthly repayments to fortnightly or weekly payments can help you pay off your mortgage faster. This adjustment takes advantage of the calendar, as making more frequent payments reduces the principal balance more quickly. For example, by paying half of your monthly repayment every two weeks, you make 26 half-payments, which is equivalent to 13 monthly payments in a year. This strategy effectively accelerates the repayment process and reduces the loan term.
- Opt for a Shorter Loan Term: When applying for a mortgage, consider opting for a shorter loan term if you can comfortably manage the higher monthly repayments. While longer loan terms reduce the monthly repayments, they also increase the total interest paid over time. Choosing a shorter loan term, such as 15 or 20 years instead of 30, allows you to pay off your mortgage faster and own your home outright sooner.
- Avoid Interest-Only Loans: Interest-only loans can be tempting due to their lower initial repayments. However, they provide little progress in reducing the principal balance. It is advisable to avoid interest-only loans and choose a loan structure that includes both principal and interest repayments. By paying down the principal amount from the beginning, you build equity in your property and reduce the overall interest paid.
- Seek Professional Advice: Seeking guidance from a financial advisor or mortgage broker can provide valuable insights into mortgage repayment strategies. They can help you navigate through the various options available and identify the most suitable approach based on your financial situation and goals. A professional can analyse your specific circumstances, offer tailored advice, and assist you in formulating a plan to pay off your mortgage faster. Speak to a mortgage broker today!
Paying off your mortgage faster is a worthwhile goal that can bring financial security and peace of mind. By implementing these tips, such as making extra repayments, utilizing offset accounts, and considering refinancing, Australians can accelerate their mortgage payoff journey.
