Purchasing a home can be an intimidating yet rewarding experience. Intimidating because you will be weighed down with a mortgage debt that can feel like it will never end, and rewarding because at the end, not only will you have a pile of dirt to call your own, you will also have a solid financial springboard to catapult your wealth forwards. Of course, while the end game is what we all strive for, many of us take a long time to pay off our mortgage debt. This doesn’t have to be the case. If you have a 25 or 30 year mortgage, by being disciplined and chipping away at the loan repayments, you could cut as much as 10 years off the life of the loan.
- Have a loan that suits
There are many home loan options out there and not all of them will work in your favour. As a rule of thumb, look for a mortgage loan that carries a competitive interest rate, flexible repayment options and minimal fees and penalties. In addition, also go by the loans ‘comparison rate’ rather than the ‘advertised rate’. The comparison rate will show you what you will really pay including any interest and fees.
- Switch to fortnightly repayments
Switching your monthly repayments to fortnightly equates to paying off 13 months a year rather than twelve. This calculates to paying off your mortgage two and half years earlier over a 30 year period.
- Pay more, pay often
The primary method to paying off your mortgage sooner is to pay more. Consider adding any windfall, such as your tax return, to your mortgage. The more you put into your mortgage, the faster your loan will be paid off. Whenever you have a little money to spare in your budget put it towards your loan.
- Take advantage of an offset account
Most variable interest rate loans have the ability to set up an offset account and they are a great way to reduce the amount of interest you will pay through your savings. Here’s how they work: You have a $300,000 mortgage at 7% interest and in your offset account (savings or transaction account) you have $15,000. Instead of paying interest on the $300,000, the home loan will deduct the $15,000 in your savings and only charge interest on $285,000.
Sometimes saving thousands of dollars can be as simple as changing lenders. If you feel that your lender’s interest rate is too high, shop around for a better rate. By switching to a lower rate, you could save on your repayments – helping you pay off your loan sooner.
We all dream of owning our home outright and by being disciplined and taking these simple steps you can go a long way to achieving that dream.
“Fiona Hamann is the senior PR manager at reputable lender, Aussie. She is passionate about all facets of communications including PR, writing, editing, website content, new media, crisis and issues management and branding in the finance industry – home loans, personal loans, credit cards, and insurance.”