Q: I have a $475,000 25-year mortgage which I’m paying off monthly at a standard variable rate of 4.6%. While rates are low I want to try and pay off as much of my mortgage as possible. Do you have any tips or tricks on how to get ahead on my mortgage while interest rates are low?
A: Using a home loan repayment calculator I worked out you’re paying around $2,667 per month on the standard variable rate of 4.6%.
There are some basic strategies that can be used to help you pay off your mortgage faster. Simple things like tweaking your repayment frequency or paying a small amount extra in each repayment can make a big different to the length of your home loan and how much interest you pay overall.
More frequent repayments
Consider switching to a fortnightly repayment. 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 each year. This would make your repayment approximately $1,230 each fortnight.
Pay more than your minimum
Based on your loan size and interest rate, if you make fortnightly repayments and pay an extra $50 each fortnight, you could save $26,025 in interest and shave one year and eight months off your loan term.
Make lump sum payments
If you have any money in a term deposit or savings account, it might be worth considering whether the interest you’re getting there is better than the interest you’d save if this money went on your mortgage. Putting your tax return or annual bonus on your mortgage as a lump sum payment can also make a big difference and help to further reduce the term of your loan and interest paid overall.
Use an offset or redraw account
If you still want to be able to access those savings I mentioned above, putting it into an offset or redraw account will still reduce the interest charged on your loan but will also mean that money is still accessible to you, should you need it.
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 broker can help you find the right home loan for your needs, whether that’s so it can be structured for flexibility so you can make extra repayments, or fixed so you know exactly what your repayments will be.
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!