Q: Like many, I want to pay off my mortgage as soon as possible. Do you have any tips or tricks to help me pay off my home loan faster?
A: The first thing you should do is contact your lender to seek a discounted rate. If they won’t come to the party, speak to a mortgage broker who can review hundreds of different loans to find one offering a more competitive rate and the flexibility and features you’re after, like the ability to pay off your loan sooner.
In addition to getting a lower interest rate, there are other basic strategies that can be used to help you pay off your mortgage faster and without cramping your lifestyle, including:
- Make repayments fortnightly instead of monthly. By paying half of your normal monthly repayment fortnightly, because there are 26 fortnights each year it’s the equivalent of making an extra months repayment every year.
- Pay more than the minimum. Even making small extra repayments on top of your minimum can make a big difference over the life of your loan.
- Make lump sum payments. When you can, throw some of your savings or your annual tax return onto your mortgage as a lump sum payment. Even small amounts can make a big difference, reducing the overall loan term by years and thousands of dollars.
- Use an offset account. Essentially a savings account linked to your mortgage, any money in your offset account will reduce the interest charged on your loan. So, if you have your $400,000 loan but you have $10,000 in savings sitting in your offset account, when interest is calculated you’ll only be charged interest on $390,000.
- Find a low or no fee loan. Avoid paying high fees and ongoing charges on your home loan. There are so many products out there which don’t attract ongoing monthly or annual fees and charges, so shop around. A loan’s comparison rate will give you an indication of the true cost of a loan, including most fees and charges.
- Know what you need. Many variable rate loans come with frills, features and flexibility that you may or may not need, but end up paying for with either higher fees or a higher interest rate.
A mortgage is likely the biggest debt you’ll ever have, so it pays to make sure you’re set up to pay it off as quickly, and cheaply, as possible.
Do you have a question for John? Leave it in the comments below and check back each Sunday to see if your question has been answered!