5 tips to shave years off your mortgage

5 tips to shave years off your mortgage

Every homeowner loves the idea of becoming mortgage-free faster and paying less interest in the lead up to that landmark event. Fortunately, there are some easy steps you can take to get there sooner – whether you’ve just got your first home loan, want to increase your property equity or become mortgage-free as soon as possible. Let’s go over them.


Get your mortgage right

First up, switch to an interest and principal repayment loan. Paying just the interest may be great for your immediate cash flow but it is only kicking your principal repayment down the road. Your principal does not reduce during the interest-only period of your mortgage. This means your debt isn’t going down and you end up paying more interest. Interest-only loans tend to be at higher rates as well, so as soon as you can afford it, get in touch to make the switch.

Increase your frequency

Move to fortnightly or weekly repayments. While there are 12 months in a year, there are 26 fortnights, not 24. So, by paying every two weeks, you’ll be repaying an extra month every year – enough to help you get mortgage-free a few years earlier.

‘Set and forget’ can be costly

Keep a look out for a better rate. It’s a good idea to check in with us to review your current interest rate, to ensure it still works for you and is competitive. We can work out what features of your current loan you want to keep and compare the interest rates on similar ones. If there’s a better rate somewhere else, we can ask your lender to match it or offer you a cheaper alternative before making the move.

Top up your repayments

Increase the amount you pay whenever you can. Anything extra you pay reduces your interest repayments and shortens the life of your loan. Since most of us don’t miss what we don’t see, automatically rounding up your repayments is a painless way to do this. For example, you could round up to the next hundred. If you pay $850 every fortnight, make it $900. That’s $1300 a year off your principal and therefore lower interest repayments every month.

Try to stick to the same repayment amount even if you switch to a lower interest rate. If you keep making the higher payments, you’ll be repaying a little extra every time. Say your minimum repayment goes from $1000 a fortnight to $800. Keep paying the $1000 a fortnight and you’ll be taking an extra $5,600 off your mortgage every year. And with interest rates always threatening to change, it’s a good idea for us to periodically check you’re on the best split of fixed and variable rates for your circumstances too.

Offset everything you can

Get an offset account and make the most of it. This savings or transaction account links to your mortgage with the balance reducing your mortgage by the same amount. Interest is calculated daily, so every day your money is in your offset will help lower your principal and therefore interest repayments. And don’t forget that your mortgage interest rate will always be higher than the rate you earn in a regular savings account, so it can be a good idea to keep all your savings – as well as your salary – in your offset account.

Compared to the size of the average mortgage, all these steps may seem like they’re making only a tiny difference to your debt. However, over the life of your mortgage and when combined, they can add up to significant savings on interest repayments and the length of your loan.

If you’d like help planning or implementing the best combination of mortgage reduction strategies for you, please get in touch on 03 5201 7960. You could be living mortgage-free a lot sooner than you think.

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