How to pay off your mortgage faster
Your mortgage debt will hang over you for twenty five to thirty years, and for many households, it’s the greatest financial commitment you’ll make in your lifetime, so it’s reassuring to know Australians are taking initiative and attempting to pay off their mortgage faster.
With several different ways to get ahead on mortgage repayments, Australians are taking a hands-on approach with servicing their home loan debt and effectively reaping the rewards from doing so.
Making extra mortgage repayments, switching to fortnightly repayments (instead of monthly), leveraging a linked offset account, negotiating a lower rate either with an existing or a new provider are the main ways Australians are freeing themselves from mortgage debt sooner.
A survey of 2,005 Australians commissioned by finder.com.au discovered that 89% of borrowers have tried to pay off their mortgage faster, with the majority (60%) of homeowners opting to make extra repayments.
More than one in three borrowers (40%) make more frequent repayments either on a fortnightly or weekly basis (instead of monthly), while 34% of borrowers use an offset account to minimise their interest payable.
Other strategies employed by borrowers include haggling for a cheaper interest rate with a current lender (5%) and refinancing to a new lender that offers a lower rate or other money-savings features (5%).
It turns out women are slightly more likely (90%) to service their mortgage faster, compared to men (88%).
How much can I pocket?
Being proactive about servicing your home loan could save you thousands of dollars over the life of the loan by reducing your interest charges and also shrinking your loan term. If you have the financial capacity to pay more than the minimum repayment, it makes sense to commit to regular overpayments on your mortgage.
For example, if you had a $367,600 mortgage at 4.73% interest, your monthly repayments would be $1,913.15 and total cost of the loan would be $688,732.79. However, if you switched to fortnightly repayments of $956.57, you would save $56,654.18 in interest and you would shave four years and seven months off your loan term. This is because you end up making one extra repayment each year (however, this depends on how your bank calculates interest, so be sure to check with your lender first).
It takes financial discipline to throw extra funds towards your mortgage, but the reward is certainly worth it. Mortgages are known for causing households financial stress (particularly if repayments constitute more than 30% of household income), so prioritise your debt so you can improve your equity position.
Refinancing to save
A clever way to save money on your home loan is to negotiate a lower interest rate either with your current lender or by switching to a new lender. If you’re negotiating with your existing lender, do your homework before you open up the conversation so you’re in a strong position to request a rate discount.
For instance, you’ll need to justify why you deserve a lower rate – perhaps you have a good repayment history or maybe you have several other products with the bank –and if you’ve been a loyal account holder, it’s likely your bank will implement a rate discount as they won’t want to lose you as a customer.
However, if your current bank isn’t willing to budge, or if you’re not satisfied with the home loan or customer service you’re currently receiving, take your business elsewhere. Search online and compare different home loan rates and see how much you could save by switching. Even a rate discount of just 0.25% could lead to big savings on your mortgage.
Getting ahead on your mortgage repayments requires motivation and discipline, but being savvy with your finances and knowing how to service your mortgage as quickly as possible will help you save thousands of dollars and it will also allow you to free yourself from debt sooner.