Mortgages, Money and Me

Debt Reduction Strategies

There are simple strategies that quite effectively help you pay off your loan faster, slash years off your loan term, and save many thousands of dollars in interest.

The secret to most of these strategies is to just “pay a little more”, and the trick lies in the power of compounding interest. That is, even small amounts with time and interest multiply up to big dollars.

Any time is a good time to start, but the sooner you start the more years that your money can work for you!

Here are some great tips for paying off your mortgage faster:

Fortnightly repayments

Where possible, choose a home loan that allows you to make weekly or fortnightly repayments rather than monthly – this will allow you to make a few extra mortgage payments every year without noticing. You see, there are 26 fortnights in a year compared to 12 months, so this little discipline means a whole extra repayment each year, and would save about 5 years off a 30 year loan at today’s rates.

Increase your home loan repayments

Increasing monthly repayments on your home loan by the smallest amount can take years off the life of a mortgage. Combining this with fortnightly payments can have a surprising effect on the principal of your mortgage over a short period of time.

Maintain higher repayments

If interest rates reduce and as a result your required home loan repayments also drop, then try to maintain your repayments at the higher level that you have been used to. This will have the direct effect of paying down the loan that bit faster.

Reduce your mortgage interest rate

One of the biggest opportunities to pay off your mortgage faster is to find a cheaper interest rate from the start. The key is to find a home loan that offers a cheap interest rate with lower fees and most importantly, a flexible home loan – we can help you with this. We will explain all about mortgage reduction strategies, how to achieve a low interest payment and how you can reduce or eliminate mortgage fees.

If increasing your monthly mortgage payments is not an option, you can still pay off your mortgage faster by refinancing your mortgage to negotiate a lower rate, and maintaining your current level of payments.

Make extra home loan repayments early

Any extra mortgage payments that you make from the very beginning, such as making your first repayment on your settlement date, all goes towards reducing the principal on your home loan and minimising interest payments.

Lump sum deposits

Should you have any windfalls such as Lotto winnings, bonus income from your employer, tax refunds, or even an inheritance, consider depositing it to the loan rather than just spending it. A small deposit now will pay off with long term compounded savings in interest!

Set up an offset bank account

An Offset Bank Account helps reduce interest costs on a home loan by linking the loan to a separate savings account. The balance in this account ‘offsets’ the home loan principal. Interest is then calculated on the home loan principal minus the balance in the offset account. For example, if the principal on your home loan is $180,000 and there is $5,000 in your offset account, then interest is only calculated on $175,000. As an investment that’s like a guaranteed return- tax-free – and will far outperform any savings account (where interest IS taxed).

Review and negotiate

Over the life of your home loan, there will be numerous changes both in the home loan market and to your personal financial situation. Make sure you regularly review your loan and lender. You may be able to negotiate a better deal on rates or fees that will again make a huge difference over the course of the loan.

If you feel your circumstances are changing or your thinking of making some decisions that will impact your income and expenses – again, talk to us! We can help you select the right product, and then negotiate on any fees, charges and or rates that may otherwise apply.

The satisfaction a homeowner feels when making that final mortgage payment is really unmatched by any other financial achievement. Following these simple steps to paying off your mortgage can help you make that dream a reality!