20 Nov 6 tips to pay off your mortgage early
It’s one of the most expensive facilities you will ever take out and sometimes it seems it will never end! We’ve asked our senior broker Paul Fox to come up with some tips to pay it off sooner.
Paul told us “With some proactive strategies and a little discipline many borrowers can slash years off their home loan in fact we have worked with many clients who will almost halve the term of their mortgage.”
The unfortunate thing is even though these strategies can save years and thousands, most people continue to pay little attention to their loan and stick with the minimum payments sometimes at a much higher rate than what is competitive in the market.
Paul has offered the following tips to assist you in getting debt free sooner:
1. Adjust your mortgage repayments with your income cycle
If you get paid weekly or fortnightly and your mortgage allows it make your mortgage payment weekly or fortnightly. “Paying your payments weekly or fortnightly will cut down on interest payable and will save you a lot of interest over the term of your home loan,” he says.
2. Switch extra cash into your loan
Depositing your saving or any lump sum payments, such as a tax refund, bonus or dividends from other investments, in your mortgage account. These large lump sums can cut years worth of interest off the loan term.
3. Pay a little extra
The RBA has maintained interest rates at record lows for a while, and whilst wages for many are slowly rising use this to your advantage by making a slight increase to your mortgage. “If you paid an extra $20 per week, that’s a coffee a day in Perth. You can knock almost two years off the life-span of your loan, simply by paying an extra $20 on each payment,” Fox says.
4. Offset your loans with a savings account
This is where the amount in your savings account offsets the same amount in your mortgage account and therefore lowers the amount of interest cahrged (If your mortgage is $400,000 and you have $15,000 in your offset you are only charged interest on the difference $385,000). In that scenario maintaining $15K in your offset would take a year off your loan term.
If you get paid $4,000 a month and those funds sit in your offset account for a few extra days per month, you could save a few hundred dollars in interest every year. It doesn’t sound like much, but it all adds up. “This is an effective way to reduce your interest as interest is calculated daily and charged at the end of the month,” Fox adds.
You may find that your loan might not be the best fit for you any more. “Loans are taking out usually for a long period of time, your circumstances and financial situation changes sometimes significantly over that time and you could find that the product that you have no longer matches your needs. You may also fall foul of bank loyalty and with many clients we see, this could mean that your rate is not competitive or your product has been superseded. You could also find that a fixed rate is more suitable or a split facility,” he says. “In that case, look at re-financing whether it is with your existing lender or a different one.”
If you’d like some more information or would like to book an appointment with a Fox broker, you can call is on 08 9304 9682 or email email@example.com.
This is general information only and does not constitute legal, tax or financial advice. Your full financial situation would need to be reviewed prior to acceptance of any offer or product.