Why and how you should pay off your mortgage early.
Taking on a mortgage is a big commitment and one that comes with many different responsibilities. However, it is possible to pay off your mortgage early and reduce the overall amount that needs to be repaid over the lifetime of the loan.
Why pay off a mortgage early?
By far one of the most common reasons to pay off your home loan early is that doing so can reduce the total cost of your mortgage. The logic here is simple, every extra dollar that you pay off in advance is a dollar that won’t accrue any additional interest, keeping your overall home loan term down and saving you money.
Early repayments are particularly valuable if you have a large amount of savings. This is because your mortgage interest rate is often higher than the rates you’re getting for your savings, meaning the amount you’re earning from your savings is less than what you’re paying on your home.
How to pay off a mortgage early.
Having a home loan that allows additional repayments can help you pay off your home sooner.
There are several ways that these additional payments can be made. Some lenders will allow you to simply make them whenever you happen to have an excess of cash, with these payments going above and beyond your typical monthly obligations. For added flexibility, look for a home loan where additional payments can be withdrawn, in the event the extra cash you’ve contributed is required elsewhere.
An alternative is to switch your regular payments from monthly to fortnightly, resulting in an extra payment per year. This may not sound like a big difference, but every little bit helps to reduce your overall home loan cost.
Of course, additional payments aren’t the only way to pay off a home loan in a shorter period of time. Another great option is to utilise an offset account. These are special savings accounts directly linked to your mortgage, with the balance held in the savings account reducing the overall interest that needs to be paid.
If you’ve already been paying off your mortgage for a few years, and would like to make additional repayments but aren’t able to, it’s important to remember that you can switch your loan provider. This is known as refinancing your home loan, and it can be a great way to open up new options such as an offset account.