5 tips to help pay off your mortgage faster

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A mortgage can be confusing, especially when looking to pay it off as quickly as possible. Mortgages are simply a loan used to purchase a home. The most common type of mortgage is the fixed-rate, where you borrow a set amount of money at a fixed interest rate for a specific period of time (usually 15, 20 or 30 years).

However, there are ways someone can pay off a mortgage faster. In this blog post, we will provide five tips on how to do this:

  1. Refinance your mortgage 

  2. Steer clear of interest-only loans

  3. Open an offset account

  4. Use a redraw facility 

  5. Switch to fortnightly payments 

By following these tips, you could be well on your way to being mortgage-free sooner than you thought!

5 tips to help pay off your mortgage faster

Refinance your mortgage 

Refinancing your mortgage is a great way to pay off your home loan sooner. Refinancing your home loan is when you take out a new home loan with a lower interest rate, which can help pay off your home quicker and save on interest costs. 

However, before refinancing, make sure it will be beneficial to do so. This means considering the cost of refinancing (such as exit fees) and how much you would save. If the home loan refinances interest rate is at least 0.25% less than what you currently pay, it could be beneficial to refinance your home loan.  You’ll be able to find online calculators to help make this decision or you could consult with an expert to do the sums for you.

We recommend doing as much research as possible and speaking to a home loan specialist to see if refinancing your mortgage is the right choice for you before committing.

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Steer clear of interest-only loans

Interest-only loans may seem like a good idea initially, but they can actually end up costing you more in the long run. With an interest-only loan, you only pay the interest on the loan for a set period of time (usually five years), which can be attractive if you want to keep your monthly payments low.

However, at the end of the interest-only period, you will need to start paying off the principal as well, and this can be a shock when you realise how much you owe. In some cases, you may even find that your interest-only loan has increased in size because of the added principal payments.

To avoid this, steer clear of interest-only loans and opt for a fixed or variable home loan with regular repayments.

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Open an offset account

An offset account is a great way to reduce the amount of interest you pay on your home loan. With an offset account, the money in the account is used to reduce the home loan’s principal (and therefore, how much interest is charged).

For example, if your home loan has a balance of $500,000 and there is $50,000 in your offset account, then only $450,000 of your home loan will accrue interest.

This means that you can pay off your home loan quicker and save on interest costs with an offset account.

Use a redraw facility 

A redraw facility is essentially when you have repaid more than the minimum amount required on your home loan. This extra money is then put into a savings account, which you can access if needed (hence the name ‘redraw facility).  It’s an option for home loans in Australia.

Similar to an offset account, a redraw facility can help pay off your home loan quicker by encouraging extra repayments. For more information on the differences between the two, check out the Joust breakdown on redraw vs offset.

While having a redraw facility may not seem like it helps pay off your home loan any faster, it actually does. This is because the more money you have in your redraw account, the less interest you will be charged on your home loan.

For example, if you have a home loan of $300,000 and a redraw facility of $30,000, then you will only be charged interest on the home loan amount of $270,000.

This means that you can pay off your home loan quicker and save on interest costs with a redraw facility.

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Switch to fortnightly payments

Switching to fortnightly home loan repayments is another great way to pay off your home loan faster and save on interest costs. This is because making fortnightly home loan repayments means you will end up paying an extra month of home loan repayments each year.

For example, if you make home loan repayments monthly and your home loan is $400,000 at an interest rate of % p.a., then after 25 years the total amount repaid will be around $773,556 (including interest). However, if you switched to fortnightly home loan repayments, you would repay the home loan in around 21 years and pay a total of $710,752 (including interest).

This means that by making fortnightly home loan repayments instead of monthly ones, you can shave four years off your home loan and save over $62,000 in interest. To find how much you could save, check out this calculator resource

Final word

So there are five great tips to help pay off your home loan faster. If you want to explore any of these tips in more detail, contact a home loan specialist for more information tailored to your personal financial circumstances!

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