4 Simple Ways to Pay Off Your Mortgage Faster
Paying off your home loan faster is the easiest way to save money on your mortgage. Time becomes your friend when you find a strategy to get those payments in faster, reduce the total interest on your loan, and start paying down your principal as early as possible.
It may seem like an onerous task, but if you are like 35% of households that own a home with a mortgage, you may be able to pay off your mortgage faster using one of these strategies below.
Change the Payment Frequencies
Depending on the time frame of your mortgage, you may end up paying (much) less money in total with a higher rate / shorter time frame than a lower rate / longer time frame.
Pay frequency is the number one determinant in how much you end up paying for a mortgage. Saving money is simple: repay the money faster than the term you sign up for. You save on interest and begin paying down principal earlier, which can give you hundreds of thousands of dollars in savings.
Use this mortgage repayments calculator to find out just how fast you can pay off your mortgage.
Maintain an Offset Account
An offset account is a savings account that saves you interest on the balance of your home loan.
The amount of money in your offset account reduces the money that you pay interest on. If you grow the money in the offset account, you further increase the money that you save on interest payments. Money saved on interest can go towards the principal, which can help you pay down the loan faster.
There are many types of offset accounts available, with the most common being the 100% offset account. This is where the entire balance in the offset account is given as a credit on the outstanding loan balance.
Savvy homeowners build their accounts by depositing salaries directly into it. The good thing about an offset facility is that you can also access the funds for cases such as a family emergency.
Make sure that you pay attention to the premiums and the fees that are involved with this financial vehicle. You must be able to pay past the fixed cost of this financial vehicle in order for it to work for you. If you are only offsetting your interest with the fees, then you may need to choose another way to pay down your mortgage.
Make Additional Payments
The redraw account is a feature that allows you to make extra payments on your home loan. Any overpayments that you make on your mortgage go directly into your redraw fund. You can withdraw those funds at any time if you need them. If you can leave them alone, however, you are given credit on your home loan that helps you pay it down more quickly.
You can make lump-sum payments towards your home loan using this flexible financial vehicle. You may also be able to refinance your mortgage based on the amount of money that is in a redraw fund.
Refinance Your Mortgage
Refinancing is the process of taking out a new loan on your home with better terms. Refinancing does come with upfront transaction costs, but your finances should improve over the long term with improved interest rates and/or lower monthly payments.
Timing is important when it comes to refinancing. Now may be a good time to get one because of the low interest rates that the RBA is pushing because of low inflation and high unemployment rates. Your bank may pass down the savings that it gets to its customers.
Currently, the cash rate is quite advantageous for lending institutions, with rates that are low enough to make refinancing a great long term option.
You may also refinance away from a variable-rate mortgage into a fixed-rate loan once the terms of the first loan are not as good. The advantage of a fixed-rate loan is that you are immune to fluctuations in the market.
Explore further: Are You on a Fixed Rate and Not Happy with It?
A market with low interest rates is a great time for fixed-rate mortgages, so now may be the time to move. This is especially true if you have a good credit score or a score that has improved since the beginning of your loan term. Lenders may be willing to give you better terms as you prove to be a reliable borrower over time.
Conclusion: Start Saving Thousands of Dollars in Interest
A huge mortgage payment can exhaust your budget. Paying it off faster can increase your equity and save you thousands of dollars in interest payments. This is your best way to financial freedom. There are many financial vehicles that you can use to turbocharge your efforts to that day — what you need to determine is the best approach that suits your financial situation.
Do you need help in choosing the right mortgage payment strategy for you? Don’t hesitate to reach out to us. Pay off the mortgage faster with our help — give us a call or an email today for your initial consultation.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.