Apr 15, 2019 9:12:11 AM

3 Simple steps to paying off your mortgage faster

Topics: nz mortgage, NZ Mortgage Adviser, Home Loan Advice, Debt-free, Mortgage-free, Mortgage Advice 0

For many young people, owning a home can seem like an unattainable goal. Paying off the mortgage and getting debt-free, even more impossible. But being mortgage-free needn’t be an impossible dream: If you’re serious about shaving off thousands of dollars of interest from your mortgage and paying your mortgage off faster, start with these 3 simple steps.

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1. Make extra payments
Making extra repayments right from the start can set you up with good saving habits. Even the smallest amount in extra repayments can make a big difference because of the effect of compound interest. Over time, those extra repayments add up, helping you chip away at your principal balance and reduce your interest charges.

For example: On a mortgage of $300,000 at a 4.5 per cent interest rate, you’ll be paying around $350 a week for a 30-year mortgage with about $250,000 in interest charges. Pay an extra $50 a week and you’ll pay your mortgage off seven years earlier and save yourself $65,000 in interest. An extra $100 a week means you’ll be debt-free 10 years earlier and save yourself $100,000 in interest!

Here are some other ways you could make extra repayments into your mortgage:

Switch from monthly to fortnightly repayments: While there are 12 months in a year, there are 26 fortnights. Divide your monthly repayment in half and pay that amount each fortnight, giving you two extra repayments a year.

Round up your repayments each fortnight or month to a whole number – even an extra $10 a fortnight could help reduce your interest and save you years of repayments.

Pay any windfalls into your mortgage – if you get paid a bonus or a tax refund, inherit some money or you sell a large asset at a profit, consider putting all of that extra income into your mortgage.

On a variable interest rate home loan, if interest rates drop and your repayments reduce, consider maintaining your mortgage repayments at the higher rate.

Remember to check with your lender to ensure you’re not penalised for making extra repayments.

2. Set up an offset account
An offset account is a transactional savings account linked to your home loan. Offset accounts work by offsetting up to 100% of the balance of the linked savings or transaction account against the balance of the linked loan. What that means is that when interest on your home loan is calculated, the balance of your offset account is taken off the principal amount owing. This can help reduce the amount of interest you’re charged and help you pay off your principal and interest home loan faster.

For example, on a mortgage of $450,000 with an interest rate of 5 per cent, with $50,000 in your offset account, you’d only be accruing interest on $400,000 of your home loan. This means you’d pay $20,000 in interest per annum rather than $22,500, saving you $2500 per annum.

3. Restructure your home loan
Refinancing your home loan to a shorter term can help you pay off your mortgage faster and reduce your interest charges. You may even be able to negotiate a better interest rate. Use an online mortgage calculator like this one to crunch the numbers and determine what you can realistically afford in mortgage repayments.

Is your home loan set up in the best way possible? Talk to a Mortgage Express adviser about refinancing your home loan to ensure you’re getting the most out of your finances. With access to a panel of bank and non-bank lenders, our team can quickly assess your current situation and help you plan ahead when it comes to your finances.

For more tips and advice around managing your money, consolidating your debts, or applying for finance, follow Mortgage Express on Facebook and Twitter, or contact one of our mortgage advisers.


Disclaimer:

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

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