5 ways to beat the banks and pay your mortgage off quicker than your neighbour.
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A mortgage is easily the biggest debt most Australians will ever incur. Often the loan terms on such a big debt exceed 20-30 years. Here are some quick win tips on how to reduce your mortgage, save thousands of dollars and beat the banks at their own game.
1. Set your repayments higher, always
So your mortgage is $1000 every fortnight? Call your lender and request that they take $1200 if you can afford it. It will slowly add up, reduce the interest payable and slash your mortgage by many years. It also creates a really nice safety net incase rates rise and you struggle to meet your repayments (the old mortgage buffer).
2. Ensure you use a mortgage offset account
This won’t save you thousands a year, though it will save you hundreds. A mortgage offset account is simply an account that is attached to your mortgage, meaning whatever dollar value sits in the account, your home loan is reduced by that amount. So instead of having your excess pay sitting in your everyday account each month, it technically sits on your mortgage, reducing the amount of interest you pay.
I unfortunately didn’t get an offset account with my low rate mortgage, though I do have a redraw facility. This means I can add my savings to my home loan and let it work to reduce the interest I owe while still been able to withdraw it at a later stage without penalty.
3. Make lump repayments or mini lump sum repayments
By taking a wad of cash, no matter how small or large and depositing it into your mortgage – you will save yourself thousands of dollars in interest over the long term. We have spoken about lump sum repayments previously, though if you struggle to find a spare $1000 to $5000 to deposit onto your mortgage, why not occasionally drop $100 or $200 into the account? It will all add up over the long run.
4. Never redraw money off your mortgage
It may be tempting to draw back some of that hard earned mortgage equity, though remember it will bite you in the long run. I personally would never redraw unless it was something life threatening. You will be forever in a cycle of debt if you continue to redraw your useable funds from your mortgage. Instead try budgeting your money more effectively to ensure you never have the need to scrape cash off your mortgage.
The only exception to this rule is when using a redraw facility as an offset account of sorts, as mentioned above.
5. Refinance every couple of years
Rates change. The industry changes. Home loan rates occasionally get a boost far and beyond your current interest rates and fees. This means that shopping around is always your biggest friend. Keep a close eye on the market so that when you are ready and eligible (without getting stung for exit fees) you can pounce on a better deal. It may shave years off your mortgage and save you lots of interest.
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Bonus mortgage tip
Ensure you pay your mortgage weekly or fortnightly, never opt for monthly. This will save you more interest as there are only 12 months in a year, compared to 52 weeks per year or 26 fortnights per year. The more frequently you pay, the less interest you will attract.
So what’s next?
Getting the best out of your existing home loan is crucial and even small changes can make a big difference. But as we have covered, keeping an eye on what is on offer in the home loan market is also pretty important. Check out our easy to use home loan health check to compare your mortgage against hundreds of other loans. You might be surprised at how much money you can save.