Pay Off Your Mortgage Faster

For anyone looking to pay off a mortgage faster the idea of owning your own home debt free is irresistible. There a number of key strategies to reduce the cost of your home loan and pay down your mortgage faster:

  • Negotiate a cheaper interest rate and only pay for the features you need
  • Increase the frequency of your repayments
  • Make repayments greater then your minimum monthly repayments
  • Utilise an offset account

Save money on interest charges by using these expert mortgage broker tips to pay out your mortgage faster!

1. Make extra repayments
Both consistent and ad-hoc additional repayments such as bonuses and tax returns work to reduce the principal on your mortgage faster. The earlier in the loan term you begin making additional repayments, the greater the benefit in terms of time and money saved.

2. Make your first repayment on settlement date
Your first home loan repayment will generally fall due one month after settlement. Making your first repayment on your settlement date reduces the principal before the first lot of interest accrues on the amount you have borrowed.

3. Make extra repayments right from the start
Regular additional repayments made right from the beginning of your loan term will have a much greater effect on the overall time and cost of your loan than starting five or ten years into the loan. Even if you are already more than five years into your loan term, you can still make a considerable saving by starting to make additional repayments now.

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4. Make repayments more often
If your loan repayment amount is calculated monthly, you can make significant additional savings by halving your monthly repayments and paying fortnightly instead. This method will result in you paying an additional month’s worth off your mortgage every year, reducing the principal faster.

Check the fine print in your loan documents to ensure your lender has not calculated your fortnightly repayments to equal half what the monthly repayment would have been, as this will not save you in time or money. Use the extra repayments calculator for an indication of how much you could save with different repayment amounts.

5. Look for a cheaper rate with good flexibility
Your mortgage broker will help you compare home loans so you choose the loan with the right level of flexibility for your needs at the right price.

There are a number of lenders whose rates differ significantly from the major banks’ rates that still offer good flexibility, but if you are going to refinance, make sure the costs of doing so do not outweigh the benefits.

6. Pay loan fees and charges up front
Pay establishment fees, legal fees and Lenders Mortgage Insurance(LMI) (if applicable) upfront rather than capitalising them into your loan. This will save you thousands of dollars in interest over the loan term.

7. Look for loans that offer features without a charge
Some loans will charge a fee for every redraw or extra repayment, to switch from a variable to a fixed rate, to port your loan to another property, take repayment holidays etc, but some won’t. You can save the cost of fees if you know what you’re likely to use and find a loan that doesn’t charge you to use it.

8. Negotiate to make savings
You may find this more difficult now due to the current global credit situation, but you can still make some useful savings by negotiating with your lender on things like interest rates and fees. Your local mortgage broker will be able to help you focus on the area you are most likely to achieve a saving, but as a guide, interest rates and establishment fees in particular are good places to start your negotiations. Good savings and credit history and good work history will help you here.

9. Review your loan regularly
Reviewing your loan regularly will help you to assess its effectiveness and take steps to correct any waste if necessary. Being on top of changes rather than waiting months or even years will potentially save you a lot of money.

10. Take a loan with an offset facility
Loans with offset facilities allow you to have your salary paid directly into the offset account which reduces the interest you pay on your home loan. The balance of the account is offset’ against the balance of the loan for interest calculations and because you pay interest daily, this can save you a lot of money over the long term.