“How can I pay off the mortgage faster?”

It’s one of the most common questions I get asked.

For almost everyone who buys a home, it’s done with a mortgage. After all, if we had to save to buy a house we’d never get there. Borrowing allows us to get into the market.

However, that borrowing comes at a huge price for most of us. Which is why this week’s question is one that everyone with a mortgage should be asking.

Let’s have a quick look at some numbers:

• If you take out a 30-year mortgage of $350,000 and pay an average interest rate of 6.5% over that time (remember interest rates are at historic lows and won’t stay there forever) then you would pay $446,406 in interest. That’s ON TOP OF the $350,000 loan!
• On those numbers, a $350,000 house actually ends up costing $796,406.

Now, if you could reduce that interest bill then that is money you get to keep for your future, instead of it going to the lender. On top of that, the money saved could then be invested instead, enabling you to create wealth to have even more money to spend in the future. These are the sorts of things that separate those who are wealthy from those who aren’t.

So, what can you do to get the mortgage paid off faster? Of course, you can increase your repayments, but I think you already knew that part. Beyond that, there a few key strategies you can use to your advantage:

GET A BETTER RATE
Most people are paying a fortune in lazy tax, that is, paying more than they have to because they haven’t taken the time to shop around. If we stick with the example above, if you could reduce your interest rate by 0.5%, you’d save $40,972 if you’re making minimum repayments… there’s one car paid for!

CHANGE PAYMENTS TO FORTNIGHTLY
It may not seem like much of a change, but there are 12 months in a year and 26 fortnights. Therefore, if you halve the amount you’re currently paying each month and start paying that amount fortnightly, it allows you to squeeze in the equivalent of an extra month’s repayment but spread across 26 fortnights so that you barely notice it. Combine this with the better rate we just looked at and suddenly a 30-year mortgage is going to be paid off 8 years earlier with a saving of $167,838… we’re now talking serious money that’s better off funding your financial future than potentially going to bank CEOs and shareholders!

USE AN OFFSET ACCOUNT
If you have savings and a mortgage, then the best place to keep your savings will usually be an offset account. An offset account is simply a transaction account linked to your home loan with the balance of the account taken away from the amount that interest is being charged on. Continuing with our example, if you had $20,000 in savings and a $350,000 mortgage, then putting the $20,000 in an offset account linked to the mortgage would mean interest would only be charged on $330,000. Another simple way to potentially save thousands of dollars in interest and shave years off the repayment period.

Remember, not all debt is bad and the sooner you can build up equity in your home then the sooner you can potentially use that to start supercharging your financial future… but that’s a conversation for another time.

If you would like help with debt repayments strategies, then please get in touch on 0411 484 464 to organise a complimentary appointment.

Cheers,
Daniel