Do you want to pay off your mortgage faster but don't know where to start?
If the answer is yes, don't fret. There are a few easy things that every borrower can do in order to successfully pay down their debt faster than ever before.
Use your home loan features effectively
Whether you have an offset account, a redraw facility, or both, one of the best ways to quickly pay down your debt is to take full advantage of your home loan features.
An offset account is a transactional account linked to your home loan, which could potentially cut years off your mortgage, while a redraw facility allows you to make extra repayments and draw on the accumulated 'buffer' in times of need.
Example: Say you have a 30 year, $500,000 mortgage with an interest rate of 4%. If you have an offset account connected to your loan, and you have $10,000 in this account from day one, you could save yourself approximately $22,445 in interest over the life of your loan, and reduce your loan term by approximately nine months.
Make higher repayments
One of the best ways to reduce your mortgage is to make higher frequent repayments. By increasing your monthly mortgage repayments by just $100, you could save yourself thousands of dollars over the life of your loan.
Example: Say you have a $500,000, 30-year P&I home loan with an interest rate of 4%. Your monthly mortgage repayments are $2,387. If you increase your regular mortgage repayments by $100, and thus pay $2,487 each month, you could save yourself $30,474 in interest and shave two years and three months off your loan term.
Have a budget
A ‘good' budget will factor in all of your regular spending habits, showing you how much you spend each month and how much you can save. You can then inject all the money you save into your offset account or redraw facility to help you pay down your mortgage faster.
Inject additional cash into your mortgage
Whether you get paid a work bonus, or usually receive money back from the tax man at the end of the financial year, it is a good idea to inject any additional funds you have into your mortgage. By making yearly lump sum payments on top of your regular monthly mortgage repayments, you can save yourself thousands of dollars in interest.
Example: Say you get $2,000 back each year after completing your tax. If you pump $2,000 into your 30-year, $500,000, 4%p.a. P&I mortgage in the first year, you could save yourself over $4,000 in interest and shave almost three months off your loan term. If you continued to pump an additional $2,000 each year into your mortgage on top of your regular monthly repayments, you could save yourself tens of thousands of dollars over the life of your loan and reduce your loan term by years.
Review your mortgage regularly
A home loan health check will show you whether or not there is a product on the market that is not only better suited to your needs, but has a sharper interest rate.
Example: If you have a $500,000 home loan with an interest rate of 4% and you refinance within the first 5 years into a home loan with an interest rate of 3.79%, you could potentially save yourself over $15,000 in interest.