Four ways to pay your mortgage off faster

Dreaming of being mortgage free? Just think of all the things you could buy with the money you send to the home loan every month!

With interest rates at an all-time low, there’s never been a better time to make that dream a reality. Here are four strategies to get you mortgage-free.

1. Make extra repayments

If you can find a few extra dollars to send to the mortgage, this is the simplest way to reduce your mortgage faster. If you have a principal-and-interest loan, as most residential home owners do, your mortgage repayment goes partly towards paying down the principal, and partly to servicing the interest. In the early years, the vast majority of the repayment covers the interest. As time goes on and the principal reduces, the balance changes.

When you make extra repayments, they come straight off the principal, thus reducing the amount of interest due. Even a little bit extra makes a huge difference.

Check that you can make extra payments before you do it, though: while most mortgage products allow for extra repayments, not all of them do.

2. Keep an eye on your interest rate

The RBA has been cutting rates for a while now, but not all lenders pass on the full cut. Unfortunately, loyalty to a lender rarely pays: most banks will offer special ‘introductory’ rates to entice new customers while leaving their long term clients on the sidelines.

Be proactive. Do some research into whether your current institution is offering lower rates than the one you’re getting. Hunt around to get a sense of what other lenders are offering. It’s a good idea to talk to a broker, as well, who will have a much more comprehensive sense of the products on the market.

You can go to your current bank and ask for a lower rate or look around for a better deal. Online lenders often offer competitive rates if a bricks and mortar institution isn’t important to you.

When you do get that lower rate, keep your repayments at their previous level. You already know you can afford it, and the extra that isn’t going to the interest can come straight off the principal.

3. Organise fortnightly repayments

Mortgage repayments are calculated monthly. If you pay fortnightly, your lender will divide each payment in two – so if your monthly repayment is $3000, you’ll pay $1500 every fortnight.

This works to your benefit in two ways. Firstly, the more frequent repayments mean that you pay less interest, helping you pay off the balance sooner. Secondly, by organising to pay fortnightly, you’ll actually make two extra payments in a year. There are 12 months in a year, but 26 fortnights. It’s a painless way to pay a little bit extra off.

4. Get a package that works for you

There are plenty of ways to package your home loan. Make sure you get the one that works for you.
Some people find it useful to put all their purchases on a credit card, keeping their income in the home loan account for longer and reducing interest before paying the balance off monthly. Others find it hard to keep credit card spending under control and prefer paying for everything from a savings account.

For some, a fixed rate loan is preferable as it offers certainty of payments for at least a few years. A variable rate is suited to those who don’t need that certainty, as the rate is often slightly lower. If you can see the benefit in each, considering spitting your loan: part fixed, part variable.

Offset accounts can be used to great effect, and in some circumstances a line of credit is ideal. If you’re not sure what sort of package would work for you, chat to an experienced home loan broker.

By keeping an eye on your mortgage and making it a priority, you can find multiple ways to save money. Every little bit helps, whether it’s taking lunch to work instead of buying it, negotiating a better interest rate or sending any lump sums straight to the principal. It’s a sacrifice, but when you’re mortgage free it’ll be worth it!

We also spoke to Head of Elders Home Loans – John Rolfe to get his top tips for paying off your mortgage faster.

• Start making payments as soon as you can, before your payment is due.
• Choose a loan with free online redraw. Pay all your ‘savings’ for rates, insurance etc into the loan and redraw when due. That will reduce your interest charged.