Steps to pay off your mortgage faster

With the high cost of living right now, it might seem like an impossible dream imagining the day when you’ve paid off your mortgage, you have thousands more in your bank account, and you are planning a trip around the world to tick off all those places on your bucket list.

But, believe us, it’s not. There are a few simple steps that could allow you to say goodbye to your mortgage years earlier than expected. 

Step 1: Switch from monthly to fortnightly  mortgage repayments

Choosing the fortnightly repayment option over the monthly one might not sound like you’re doing much but it will shorten the life of your mortgage considerably in the long run.

Why? Because when you pay fortnightly, you will be making 26 payments over the year, compared to just 12 with the monthly option.

For example, if your monthly repayments are $3,000, over a year you will have paid back $36,000. Whereas repaying $1,500 each fortnight will mean you have repaid $39,000 - a whole month more each year.  

Step 2: Top up your ongoing repayments

Many home loans now come standard with a fee free extra repayments facility so take advantage of this handy feature. Paying even the smallest bit more can make a significant difference over the course of a 25 mortgage term.

Here’s how. Say you have a $500,000 home loan with a rate of 4.50% that you’re repaying over 25 years, adding just $50 extra to your fortnightly repayments will save you $28,976 in interest and slash your loan by 1 year and 8 months. Imagine how much you would save if you topped it up by $100 each fortnight?And if you do make extra repayments and later on down the track you need to tap into that money you usually can as most variable rate mortgages will also have redraw options for this purpose. 

Step 3: Use a mortgage offset account

If there is an offset account option with your home loan use it instead of having a separate bank account as an offset account provides you with exactly the same service but with the added perk of reducing the interest you pay and the term of your loan.

Just like a bank account you can get your salary deposited into the offset account and it also comes with a debit card for everyday purposes (e.g ATM withdrawals, over the counter purchases).

How the offsetting part works is if your account balance is $20,000 and your mortgage amount is $300,000, then this would mean you would only be charged interest on $280,000. Want to learn more, see our offset account guide or compare offset home loans from a range of lenders.     

Step 4: Health check your mortgage rate every few years

While the above steps are important in shortening the term of your mortgage, one of the most important things is to ensure you’re always signed up with a competitive home loan over the entire life of your loan.

For instance, let’s use an example of a borrower -  with a $700,000 loan amount paid back over 25 years - who is currently signed up with the average big 4 variable rate of 7.30%. If they were to refinance to the lowest rate in Mozo’s database of 5.49% (at the time of writing) they could save $788 a month or a massive $236,336 in interest over the life of the loan. 

To quickly see how much you could save by making the home loan switch use our Home Loan Switch & Save Calculator or compare loans below.