Most homeowners long for the day when they’ll be mortgage-free. But that can feel a bit like a distant dream with no clear path to get there. Depending on your loan term, you could be paying back your mortgage until well past your retirement age, potentially never fully “owning” your home. If the thought of being mortgage-free appeals to you, here are 5 ways you could pay off your mortgage faster.
1. Refinance to a lower interest rate
If your fixed rate loan term is nearing its end, or you’ve been repaying your mortgage for some time, now may be the right time to refinance or restructure your home loan. Refinancing could save you thousands of dollars in interest charges or offer you more flexible terms, like the option of making extra repayments when you can or locking in a better fixed rate, all of which will help you get mortgage-free faster.
With interest rates at historic lows, it makes financial sense to review your mortgage with a view to refinancing to a lower interest rate.
2. Switch to fortnightly repayments instead of monthly
While it makes sense to repay your mortgage monthly if you’re paid monthly, increasing the frequency of your repayments can help reduce your mortgage term. When your repayments are calculated on a fortnightly basis instead of monthly, you essentially make two extra mortgage repayments each year, which has a significant impact on how long it will take you to repay your mortgage.
It’s a simple change but one that can have a major effect on your finances in the long-term.
3. Make a lump sum payment or extra repayments
Paying a little more into your mortgage whenever you can, or diverting any extra bonuses or pay rises you get into your home loan, can make a significant difference over the lifetime of your home loan.
Some ways you could make extra repayments include:
- Reviewing your budget and identifying areas you could cut down on – like that meal out once a week and diverting those savings into your home loan.
- Rounding up your repayments to the nearest hundred.
- Recalculating your repayments to a shorter loan term so you’re paying a little more each fortnight.
- Any time your financial situation changes – like an increase in pay – increase your mortgage repayments.
- Pay any windfalls – like an inheritance or a tax refund – into your mortgage.
A lump sum repayment goes directly into paying off your principal loan so not only does it help reduce your mortgage term over its lifetime, it also helps cut down the amount of interest you’ll pay.
4. Maintain your repayments at current levels even if interest rates fall
Sure it’s tempting to lower your repayments each time the interest rate drops, but if you’re already paying back your mortgage at current levels, why not leave your repayments at that level and continue paying the higher amount? Those few extra dollars quickly add up to a sizeable saving in the long-term.
5. Use an offset account
An offset account is linked to your mortgage. Having your salary paid directly into your offset account means interest is calculated daily on the balance in your offset account – your mortgage less your income – so you effectively are charged less interest. You’d be surprised at just how much of a saving this can be!
If you’d like to find out more about repaying your mortgage faster – by refinancing, refixing or restructuring your existing home loan - get in touch with the team at Mortgage Express. Simply complete this online form or drop us a line and we’ll be in touch to set up a time to meet.
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