Crush Your Mortgage With These Easy Strategies
Crush Your Mortgage With These Easy Strategies
- April 19, 2017
- Posted by: Daniel McGregor
I’ve written before about the need to shop around and get a good interest rate on your mortgage. There are a number of other things you can do to crush your mortgage faster. The sooner that happens, the sooner you can start using those interest payments to build wealth outside the home.
Before we look at how to pay off the mortgage faster, it’s worth spending a moment looking at why you’d want to pay it off faster.
The average new mortgage in Australia is $384,500. If paid off over 30 years, it will result in interest alone of $490,409 being paid if interest rates average 6.5% over that time. That means the interest bill would be more than the cost of the house! You can see how banks make a lot of money by lending us money! They understand the long term but most of the borrowers don’t.
That’s our why, here’s our how… Here are four simple strategies for paying off your mortgage faster.
1. Switch your payments to fortnightly
If you’re making monthly mortgage payments, one easy way to save a fortune on your mortgage is to change your repayments from monthly to fortnightly. The trick is to divide your monthly payment in two. You will be speeding up the repayment process because there are 26 fortnights and only 12 months.
Paying fortnightly allows you to squeeze in the equivalent of one extra monthly repayment per year. If we stick with the example above, monthly repayments are $2,430 and after a year you would have paid $29,160 (12 x $2,430). Dividing the monthly payment in two and paying fortnightly means paying $31,590 (26 x $1,215). This is $2,430 (equivalent to one monthly payment) more than if you were making repayments on a monthly basis. That means an extra $2,430 is paid off your principal.
Incredibly, this would cut the mortgage by 6 years and save $113,000 on that average mortgage.
2. Use an offset account
There is no point having savings sitting in a savings account if it can sit against your mortgage via an offset account.
This is because with an offset account you’re effectively getting your mortgage interest rate as your return, which will always be higher than the savings rates your lender offers.
3. Make pay rises work for you
One easy way to pay a little extra off your mortgage is to check how much extra you get paid after you get a pay rise and increase your mortgage payments by that much. It’s a forced way of saving a little more and this little bit extra in each mortgage payment adds up to a lot over time. If you happen to be in a job that pays bonuses, then they can be a great way to make big inroads into the mortgage.
4. Use your tax refund
Pencil this in your diary… when you get your tax refund, pay the money straight off your mortgage.
Keep in mind that every lender and every mortgage have their own repayment rules. Check your options with your lender.
Above are some ways to crush your mortgage. It’s a fraction of what we’re doing to help people take control of their money with financial advice.
Cheers,
Daniel