Who wouldn’t love the feeling of being mortgage-free? With your repayments very slowly whittling away at the balance over a long period of time, paying off your home loan can sometimes feel like a hard-fought battle.
While purchasing a property can require sizeable financial commitment, low interest rates mean households are able to pay down their debt quicker and Australians are becoming savvier with their repayment strategies. In fact, the Australian Bankers Association has found that households are the equivalent of 28 months ahead on their mortgage.
If you’d like to find yourself mortgage-free quicker, here are some tips to take on board.
Be smart with repayments
Paying down your mortgage doesn’t necessarily mean you have to make enormous sacrifices. You can be clever with your strategy and cut down on interest, without putting a big dent in your finances. For instance, if you can make your repayments fortnightly, rather than monthly, you can significantly trim down the outstanding balance on your loan and save on interest.
Think about it this way: Rather than making 12 payments a year, you’ll essentially halve your monthly payments by contributing an amount every two weeks. What’s more, because there are 26 fortnights in a year, you’re also making an extra payment! This is a particularly useful strategy if you’re paid fortnightly as you can align your repayments with your income.
Add a little extra when you can
While it’s tempting just to stick to the minimum repayments, bumping up the amount you designate to your mortgage can help you build equity and reduce the loan term. Remember to check with your lender about the terms for making extra repayments. This is typically an option with variable rate home loans, while fixed-rate mortgages often have limitations.
If you can afford to dedicate more to paying off the mortgage, and have the choice, it’s well worth doing. Another useful method for trimming down the loan term is to make use of lump sums. Combined with regularly increasing your repayments, investing extra cash – such as a tax refund, bonus payment or inheritance – in your mortgage can make a large difference further down the line, particularly in the early years of your home loan.
Take advantage of a mortgage offset account
Offset accounts are another feature you might come across. These are typically attached to variable rate home loans, and gives you the option to link your mortgage to a separate account. This works like a normal savings account, but with a key difference: The amount you hold in the account is offset against the remaining balance on your home loan.
This can significantly cut down on the amount of interest you’ll need to repay, especially if you’re clever with your additional repayments. For example, transferring a portion of your salary into your offset account can build a solid foundation and help you pay down your mortgage in a shorter period of time.
Of course, knowing exactly how much you owe now can help you adjust your repayments, and work out how much extra you can afford to pay. Our lending experts at Police Bank can help with these calculations, as well as offer guidance on which of our mortgage options can work for you.