How to pay off your mortgage faster? Many Australians are starting to look hard at their finances because of the COVID-19 pandemic.
Since the RBA cash rate has dropped to 0.1%, most borrowers want to switch to a fixed-rate loan. But both fixed-rate and variable-rate mortgages have pros and cons.
A survey found that most mortgage brokers think refinancing will still be the primary type of mortgage business in 2022. People might want to pay off their mortgage faster, which could be one reason why refinancing is on the rise.
Check out these tips from our mortgage brokers if you want to pay off your mortgage faster, too:
How To Pay Off Your Mortgage Faster In Australia: 6 Tips
Here are 6 easy ways to pay off your mortgage faster:
1. Look for a lower interest rate to pay your mortgage faster.
If you last talked to a mortgage broker about your home loan a while ago, you might be paying too much interest. If you find a lower interest rate, you can pay your mortgage faster because you won’t have to spend as much interest. It also makes it easier to follow the next few tips.
You don’t have to have a hard time or take a long time to find a lower interest rate. The best way to determine if you are getting the best deal on your home loan is to ask an experienced mortgage broker to help you review it. If you get a lower interest rate than what you have now, you could save money on the interest you pay on your mortgage and pay off your debt faster.
2. Pay more on your mortgage to pay it off faster.
You should pay more on your mortgage when you get some extra money. It could be a tax refund, a gift of money, or selling things around your house. Any additional payments you make on your mortgage will save you money on interest and help you pay it off faster.
Are the first five to eight years of payments on a principal and interest home loan with a 25-year loan term just used to pay off the interest? Any extra payments you can make on your mortgage in the first few years will lower your interest and help you pay it off faster.
If your interest rate is variable, making extra payments now can also give you a cushion in case interest rates go up.
3. Raise the amount of your regular payment
Have you found a loan with a lower rate of interest? When you switch, think about making the same payments as you did before at the higher interest rate. This will help you pay off your mortgage faster. In the same way, if your variable interest rate goes down, you can keep paying off your loan at a higher amount if your lender lets you. No matter the interest rate, you can choose a regular payment over the minimum monthly payment. Your loan will be paid off faster if you make extra payments regularly.
4. Change to payments every two weeks
You can pay off your mortgage faster if you change how often you make payments. If you pay your loan back monthly, you can pay it back every two weeks. This isn’t an extra payment; it’s just splitting your monthly payment into two payments every two weeks.
If you pay the monthly payment every two weeks instead of once a month, you’ll make the equivalent of an extra month’s payment every year (26 fortnights instead of 12 months). With this extra money each year, you’ll be able to pay off your mortgage debt faster.
5. Think about getting a mortgage with an offset account
An offset account is a savings or transaction account linked to your mortgage and comes with some loan products. The amount you owe on your mortgage will go down by the amount in your offset account. By lowering the total amount owed, you pay less interest, which can help you pay off your mortgage faster.
6. If you want to pay off your mortgage quickly, don’t get an interest-only loan.
For various reasons, some people choose an interest-only loan when choosing a home loan lender and mortgage. If you want to pay off your mortgage as soon as possible, choose a loan where both the principal and the interest are due every month.
With a typical home loan, you pay back the principal (a portion of the amount you borrowed, paid every month) and the interest for the same period. But with an interest-only loan, you only have to pay back the interest on the money you borrowed. During this time, your principal doesn’t go down, so you’ll still have to pay back the full amount you borrowed and more interest when the interest-only period is over. This is different from what you want to do if you want to pay off your mortgage faster, so if that’s your goal, don’t get an interest-only loan.
Extra tips on how to pay off your mortgage faster Australia?
Our mortgage broker says that the best things to do are to make extra payments and choose an offset account.
But there are a few extra things you can do to pay off your mortgage faster:
- Buying a property as an investment: Getting a loan to buy an investment property will add to your debt, but if you plan it right, it can also help you pay off your home and your investment loan. You’ll need to be patient because you’ll have to wait for the property’s value to go up.
- Putting the most money down: When you get a home loan, the downpayment is the deposit you must pay at the beginning of the process. If you put down as much as possible, you can cut the size of your home loan and make your payments easier to handle.
- Pay off the debts with the highest interest rates and fees first: The cost of debt depends on the interest rate, fees, and whether or not the tax is deductible. If you pay off debts with high-interest rates first, it will be easier for you to make extra payments on your home loan.
- Downsizing means selling your old house and buying a smaller one: Most people see this as a way to get out of their mortgage when they reach retirement age. You can get some extra money and pay off your mortgage faster by downsizing.
- Make P&I payments: With interest-only payments, you only pay back the interest on what you borrowed. Making payments on both the principal and the interest will help you keep track of your payments and pay off your loan faster.
Conclusion – Advantages Of Paying Off Your Mortgage Early
People often have trouble deciding whether to pay off their mortgage or save money, but in the long run, getting rid of the mortgage is a much better choice. For one thing, paying off one debt means you can handle short-term debts like credit cards. If you pay off your mortgage early, you also save money because you don’t have to pay as much interest. Your financial stability is improved by getting rid of these future payments and by better handling the housing market’s ups and downs.
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