Steps to pay off your mortgage faster
Imagine this: You’ve paid off your mortgage years earlier than expected, have thousands more in your bank account and your next big purchase will be an around the world trip, as you finally tick all those places off your bucket list.
Sound too good to be true? That could be you, we promise. All you need to do is follow a few simple steps to say goodbye to your mortgage sooner…
Step 1: Set up your mortgage repayments fortnightly
It might not sound like you’re doing much by choosing the fortnightly repayment option over the monthly one but trust us, it will shorten the life of your mortgage considerably in the long run.
The reason is 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 $2,000, over a year you will have paid back $24,000. Whereas repaying $1,000 each fortnight will mean you have repaid $26,000 - a whole month more each year.
Step 2: Top up your ongoing repayments
If you sign up with a mortgage that comes with a fee free extra repayments facility, make sure you take advantage of this feature, as paying even the smallest bit more can make a significant difference over the course of a mortgage term.
Say you have a $500,000 home loan with a rate of 4.5% 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?
Step 3: Park your cash in a mortgage offset account
Why have a bank account, when you can have an offset account that 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.
Step 4: Give your mortgage a health check 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 mortgage 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 5.03%. If they were to refinance to the lowest rate in Mozo’s database of 3.86% (at the time of writing) but kept up the same fortnightly repayments of around $1,900, they would pay off the loan up to 5 years earlier.
To quickly see how much you could save by making the home loan switch use our Switch & Save Calculator here.