The idea of paying off your mortgage for the next 30 years could be daunting. But is there something you could do to repay your debt early?
Paying more than the minimum monthly repayment amount each month is the simplest way to crush your debt early. However, this may not be possible for everyone. Increasing interest rates and rising living costs have placed significant pressure on households, making it challenging to meet ongoing financial obligations. However, by making minor adjustments and following some of these practical tips, you can take control of your mortgage and try to repay your debt sooner.
1. Making larger repayments
One effective method to pay off your loan early is to imagine a slightly higher interest rate than your current one and plan your repayments accordingly. By consistently paying off more than the minimum amount due, you’ll reduce your principal faster and create a buffer against potential rate hikes.
But how do you allocate more money to your mortgage repayments in these financially challenging times?
Putting extra money towards your mortgage may require making small sacrifices in your daily spending habits. By curbing unnecessary indulgences, you could create some room in your budget and use the savings to pay off your mortgage faster.
You could also use any unexpected windfalls, such as tax refunds or work bonuses, to make lump sum payments towards your mortgage. Use our lump sum calculator to determine the effect of additional repayments on your home loan.
2. Making more frequent payments
Another way you could pay your home loan quicker is by increasing the frequency of your repayments. Most lenders allow you the flexibility of changing your repayment frequency. Making repayments every fortnight instead of paying every month can help you get ahead of your mortgage by making one additional monthly repayment per year. That’s because there are 12 months in a year but 26 fortnights that translate into 13 monthly mortgage repayments when you pay fortnightly.
3. Using an offset account
Using an offset account with your home loan could help you pay down your home loan sooner than later. You could think of an offset account like a transaction account linked to your mortgage. However, instead of earning any interest, the balance in your offset account reduces the principal on which you’re charged interest.
Coming to whether an offset account is suitable for everyone – the answer may depend on your personal financial situation and goals. You’ll likely pay a fee for using an offset account with your mortgage, and it’s important that the costs do not outweigh your potential savings. To ensure this, you must try to maintain a suitably high balance in your offset account. Otherwise, the strategy may not be beneficial in saving you interest charges or repaying your loan early.
4. Checking whether you’re paying a competitive interest rate
Even though mortgage interest rates have been increasing, it’s possible to score a deal with a lower interest rate with another lender, especially when you’ve been on the same loan for several years.
Visit any online comparison site to check refinancing deals and see whether you can find a suitable home loan with a lower interest rate. Some lenders also offer cashback deals when you refinance, which could help you pay for the upfront costs of switching your loan.
If you’re considering refinancing to a lower rate, remember not to reduce your repayment size so you pay a little extra towards your mortgage each month. This can help you pay down your principal faster and repay the loan earlier.
If you need help determining whether refinancing is the right option for you, a mortgage broker might be able to guide you. A broker can help you compare your ongoing loan against the various deals in the market and explore the possibility of finding a more competitive rate to save you money.
By Vidhu Bajaj,
Hashching Content Writer