I regularly meet with new clients who discuss how long their mortgages are taking to pay and wish they could pay it off more quickly. What I have come to realise is that most people do not know of a handful of strategies that could take years off their loan repayments. Most consumers don’t know there are options to decrease the loan costs and length of repayments.
What I have come to realise is that most people do not know of a handful of strategies that could take years off their loan repayments. Most consumers don’t know there are options to decrease the loan costs and length of repayments. Over the next few blogs, I will explain a myriad of mortgage reduction options available to everyday Australians.
Discussing your financial situation with a professional property investing mentor will help you find suitable strategies to employ.
Use weekly or fortnightly repayments
This is one of the most simple and low-risk tactics out there, while also being surprisingly effective. Most loans offer monthly or fortnightly repayments, and there are 52 weeks in a year or 26 fortnights. By paying fortnightly, you are actually paying 13 monthly repayments rather than 12 calendar months (26 dived by 2). Offering one extra month’s repayment each year, without noticing really! When it comes down to paying down your loan more rapidly, by paying fortnightly you could take 4 years off a 25-year loan. Now that’s an easy strategy, simple but effective.
Give your mortgage extra income as you receive it
As you earn more money in your career, allocate the pay-rise toward your mortgage rather than spending it. Something so simple, but easy to forget or not prioritise! The principal amount on which interest is calculated will come down each time you pay more off. Thus you’ll pay less interest overall if you stick with this idea.
Keep your repayments the same when you refinance to a lower rate
At various points in the life of your loan, you will be able to refinance. Once you are able to refinance and obtain a lower interest rate with possibly smaller repayments, work to maintain your repayments at the higher rate. You are used to paying this amount so it’s smart to continue rather than minimise repayments as many Australians do.
Tax return lump sum payments
Provided there are no fees for paying off lump sums from your mortgage provider this can be a very effective tactic to reduce your mortgage. Each year put your tax return onto your mortgage repayments, the principal amount that your interest is calculated will reduce thus you will be paying in future less overall interest.