With interest rates rising and the cost of
living surging, many Australians are likely wishing their mortgage was already
paid off. While most borrowers look to pay off the minimum each month, there
are things you can do to pay down the mortgage faster. Here are five options to
consider:
Increase your repayment frequency
Most borrowers typically set their home
loan repayments to monthly – but that might be a mistake. By switching to
fortnightly or weekly repayments, you can make serious headway in your debt
reduction. That’s because there are 26 fortnights and 52 weeks in a year,
compared to just 12 months. By paying half your monthly repayment every
fortnight, you end up making an equivalent of one extra month’s payment every
year. While it’s a simple strategy it can cut years off your repayment period
and save you thousands in interest.
Make additional repayments
Another small way to make a big impact on
your mortgage is to make additional repayments whenever possible. Whether it’s
a tax refund, a work bonus or a small windfall, putting extra money toward your
mortgage can dramatically reduce the principal. And because interest is
calculated on this principal amount, you’ll pay less interest over the life of
the loan. Just remember, before you start making extra repayments ensure your
loan allows it without charging additional fees.
Refinance
Refinancing can be an effective way to pay
off your home loan faster. As interest rates change, it can be worth comparing
lenders to see other options. By switching to a loan with a lower rate, you
could potentially save thousands of dollars. Just keep in mind that refinancing
comes with costs, so it’s important to crunch the numbers and make sure it’s
financially beneficial in the long run.
Using an offset account
An offset account is a transaction account
linked to your home loan. The money you have in this account ‘offsets’ the
amount you owe on your mortgage, and effectively reduces the interest you pay.
For example, if you have a $500,000 loan and $20,000 in your offset account,
you only pay interest on $480,000. Even small amounts in your offset can lead
to significant savings over time, helping you pay off your loan sooner.
Review and budget
It’s critical to regularly review your household budget and keep a keen eye on where your money is going. Are you spending extra money on non-essential items? Consider cutting back and putting that extra money toward your home loan. Remember, every dollar counts when you’re aiming to pay off your loan faster.