How to Pay Off Your Mortgage Faster
- Written by: Ryan Curtis
Paying off the mortgage on your property early can save you significant amounts of money on interest Freeing yourself of the burden of having to keep up with monthly mortgage payments will not only give you more financial freedom; it will also remove a significant cause of stress from your life. In this post, we will lay out a few actions that you can take to help pay off your mortgage faster. Read on to find out more.
1. Look for Better Interest Rates
You may not be aware of it, but you could be paying more interest on your loan than you have to. It can pay off to do some research into the offers of other mortgage lending companies to see whether they can beat the terms of your current loan.
If you find a lower interest somewhere else, you can then ask your lender to match the rate. If they are not prepared to do this, you can remortgage your home with a new lender. Just make sure that it does work out cheaper once you have paid any fees charged for switching lenders.
2. Make Extra Payments
The total amount to be repaid will not reduce much over the first five to eight years of the mortgage. This is because the majority of the money from your repayments will go toward paying off interest.
A good way to take a larger bite out of your mortgage is to make extra unscheduled repayments. This can be done at times when you have a little extra cash floating around, such as when your tax rebate drops or you receive your annual bonus at work.
3. Do Not Use an Interest-Only Loan
People who are serious about paying off their mortgages quickly should look for loans whose repayments reduce both the principal and interest on the loan. While most home loans work this way, you should be careful not to organise an interest-only loan.
Interest-only loans only require the borrower to pay the interest on the amount borrowed for an initial set period of usually a few years. Only when this period is over will you actually start reducing the total arrears.
4. Use an Offset Account
Offset accounts are current accounts or savings accounts that are linked to a mortgage. When interest payments are calculated, the balance of an offset account is subtracted from the total amount still to be repaid on your loan.
For example, if you owe $400,000 and have $40,000 in your offset account, you will only have to pay interest on $360,000. Theoretically, this benefit should help you to pay off your mortgage faster.
The Latin meaning of the word “mortgage” is “until you die”. However, with some prudent financial management, you need not spend your whole life paying back your loan. If you use some of the strategies listed in this article, it should not be long before you start to make some serious inroads into your mortgage.
