How To Pay Off Your Mortgage Faster
Paying off your home loan faster is a wise financial choice regardless of economic conditions. Accelerating your repayment schedule can minimize interest payments throughout the loan term and achieve equity in your property sooner. Moreover, clearing debts can boost your credit score, enhancing your chances of securing future loans. Additionally, achieving mortgage-free status sooner seems reliable to many individuals.
The current American landscape is characterized by a cost of living crisis. It is marked by surging national home prices and ongoing inflation leading to increased interest rates. paying off your mortgage faster can offer significant financial advantages. By executing the following five tips within your budget, you can substantially alleviate your mortgage burden amidst this challenging economic climate.
Five Ways To Pay Off Your Mortgage Faster
Explore the ways to pay off your mortgage faster than ever. These strategies may not be for every homeowner’s budget or financial circumstances. It’s prudent to explore these methods as your loan progresses.
Switch to Fortnightly Payments
If you’re currently paying your home loan monthly, consider switching to a fortnightly repayment schedule. This adjustment enables you to integrate extra payments into your budget without notable financial pressure. By opting for fortnightly payments, you’ll effectively cover an additional month’s worth of the loan each year. There are 26 fortnights annually compared to only 12 months.
Make Lump Sum Payments Throughout the Year
When you receive extra funds, like a holiday bonus or a substantial tax refund. Consider using that money to pay down your mortgage. Any opportunity to reduce the principal balance of your loan. It will lead to lower interest payments throughout the mortgage.
Nevertheless, it’s crucial to be cautious that certain home loans have specific guidelines concerning extra repayments. You may be restricted to making additional lump sum payments only a certain number of times per year or up to a predetermined maximum amount, and there may be fees associated with these payments.
Increase Your Repayments
With soaring interest rates and rising living costs, allocating more funds towards your mortgage may not be top of mind. However, adjusting your budget for higher repayments now or when interest rates decrease can fast-track your journey to mortgage-free status.
Imagine you have a $500,000 home loan with a 6.5% interest rate. Currently paying $3,377 monthly in principal and interest, you’ll clear the loan in 25 years, spending $512,811 in interest alone.
By increasing repayments by roughly $350 to $3,727 monthly, you’ll pay off the loan in 20 years, saving $118,123 in interest over its lifespan.
Set up a Mortgage Offset Account
An offset account proves invaluable for mortgage holders who have substantial savings. Linking this account to your mortgage operates like a regular transaction account. While reducing the interest you owe on top of your loan principal.
Let’s revisit the $500,000 mortgage scenario. If you deposit $25,000 into a 100% offset account, interest is calculated on only $475,000 of the loan amount. It’s worth noting that some lenders offer partial offsets, where mortgage interest payments are reduced by a certain percentage of your account balance. Regardless, the savings will accumulate as you pay down your mortgage or increase the balance in your offset account.
However, not all home loans provide access to an offset account. Certain providers may impose a service fee or higher interest rate for this feature. If you don’t have substantial savings, this tool may not justify the cost or offer as much value as other mortgage features. Such as the ability to make and withdraw extra repayments.
Shop Around for a Lower Interest rate
It’s essential to stay vigilant about the market to secure the optimal deal for your mortgage. Whether you’re aiming for a more affordable interest rate or seeking enhanced flexibility and additional features at a comparable rate. If your goal is to pay off your home loan quickly. Consider maintaining the same repayment amount per fortnight or month, even if you switch to a loan with a lower interest rate. For further insights, you can delve into our guide on the top home loan deals available in the market.
How To Refinance Your Mortgage
If you find a mortgage that fits your needs, such as minimal fees or a lower interest rate, consider discussing it with your current lender first to see if they can match it. Switching lenders may incur early loan exit costs like discharge fees or break costs. If your current lender’s offer doesn’t meet your requirements and you’ve evaluated the costs and benefits of switching loans, then refinancing your home loan could be an option.
Before proceeding with any official home loan applications, it’s prudent to consult with several preferred lenders to confirm their willingness to take on your debt. Alternatively, you may opt to enlist the services of a mortgage broker. Rejected loan applications can negatively impact your credit score, affecting your ability to obtain financing.
Once you’ve identified a suitable home loan with a lender willing to assume your debt, you’ll need to complete their formal application process and await approval. Following this, the two lenders will coordinate the discharge and settlement of the remaining balance on your loan.
Ensure to carefully review all pertinent documents to identify any potential issues or hidden costs. Once everything is finalized, your new lender will establish your account in their system. This will enable you to commence repaying the loan at the new rate.
Is Paying Off Your Mortgage Faster The Right Choice For You?
A mortgage is often one of the largest debts you’ll face in your lifetime, and paying it off quickly can bring many benefits. However, it’s important for every mortgage holder to consider this decision in light of their overall financial situation.
You may have other financial obligations or goals that take priority before allocating extra funds to your home loan. For example, you might be saving for a vacation or another special event, or you may have additional debts like a car loan or business loan with stricter repayment schedules. Prioritizing certain investments over debt repayment, such as adding to your superannuation fund or investing in shares, could also be valid considerations.
Regardless of your circumstances, it’s essential to thoroughly research and evaluate the benefits and risks of each financial decision. You can do this independently or seek advice from a qualified financial professional.