How to pay off your mortgage fast
Becoming mortgage free has always been a huge goal for us, and I’m excited to say that we are almost there! These 5 tips on how to pay off your mortgage fast share the strategies we used to save massive amounts in interest expenses. Even just making one small change, like paying an extra $10 a week off your mortgage, will have a huge impact on your loan term and how much interest you pay.
Have a 100% offset or redraw facility
This is something we have done for as long as we have had a mortgage, and it has saved us tens of thousands of dollars in interest, and cut our loan term down significantly. Especially at the moment, there is not much point putting your savings into a savings account earning only around 2% when you could keep it in your mortgage and ‘save’ 4%.
When searching for a home loan, look for either an offset account attached to the loan, or a redraw facility. Some banks will charge you to redraw your own money back out of your loan, so be sure to find a lender that offers unlimited redraws for free.
Also read: 7 simple habits that will make you rich
Have you pay and any other income go into the offset
Once you have an offset account or redraw ready to go, put your pay and any other income you earn straight in. Every dollar you have sitting there is saving you money in interest, and it’s easy to pull it out again as needed.
We have setup a system that doesn’t suit anyone, but if you are great at controlling your spending could work well for you. We put every expense possible throughout the month onto a credit card, including bills, and pay it all off at the end of each month. That means that our entire income each pay period can sit in our redraw until our credit card repayment is due, when we simply pull it out of the redraw and pay the card. It means that we are making our income work as hard as possible for us by reducing our interest expense, and as a bonus we also get frequent flyer points for every dollar we spend on our card.
Also read: How to use a credit card to your advantage
Review your home loan every 2 years
Interest rates change often, and lenders are often offering lower interest rates to attract new business. What is a great rate now might not be in 2 years time, so it’s a great idea to revisit your loan every 2 years to check that you are still on the best interest rate. If you find a great rate offered by a different lender, give your bank a call and ask if they can match the rate. We tried this with our bank recently and they dropped our rate on the spot.
If your bank won’t give you a better rate don’t be afraid to move the loan to another bank if it means saving thousands over the life of the loan. Being loyal to a bank rarely pays off.
Make repayments as though you have a 15 year loan term
If you have the cash, ignore the banks repayment amount and calculate how much you would need to pay per repayment to pay off the loan in 15 years.
For example, if you borrow $200,000 at 4% over a 30 year loan term, your repayments would be $220 per week. If you wanted to pay your loan off in 15 years, you would then increase your repayments to $341 per week. Paying an extra $121 each week will save you $77,472 in interest, and have you mortgage free in only 15 years.
Also read: The 5 secrets to becoming debt free