How Can You Pay Off Your Mortgage Faster and Save Money?
Paying off a mortgage, home loan or investment loan can seem like an insurmountable task, however here we provide the secrets to pay off your mortgage, ways to reduce your loan principal and decrease the amount of interest you pay over time.
In this article, we will share some secrets to help you pay off your mortgage faster and smarter. We’ll also provide some helpful calculator to visualise the impact of these strategies.
Tip #1: Make Extra Repayments.
One of the easiest ways to pay off your mortgage faster is to make extra loan repayments. By contributing even a small amount on top of your regular payments, you can significantly reduce the loan term and the amount of interest payable. For instance, if you have a loan of $500,000 with a 4.50% interest rate and a 30-year term, your monthly repayment would be $2,533 with a total interest component of $412,034. By changing your payment frequency to fortnightly and making extra repayments of just $50 per fortnight, you could save $70,084 in interest and reduce your loan term by 1.7 years.
To see the impact of extra repayments on your mortgage, use Neomoney’s Extra Repayments Calculator.
Tip #2: Refinance to a Lower Interest Rate.
Refinancing your mortgage can be a smart move if you’re looking to access a lower interest rate, which can potentially save you thousands of dollars over the life of the loan. By refinancing to a shorter loan term, you can further reduce your interest costs. Moreover, if you have other debts with higher interest rates, you may want to consider consolidating them into your mortgage loan at the time of refinancing. This way, you can streamline your payments and potentially reduce your overall interest expenses. However, it’s crucial to weigh up the costs of refinancing, such as application fees, valuation fees, and exit fees, before making a decision. Furthermore, if you’ve paid Lenders Mortgage Insurance Premium (LMI) make sure that the Loan to Value Ratio (LVR) is at or below 80% when refinancing; otherwise, you may need to pay LMI again with the new lender.
Use Neomoney’s Calculator to compare the costs and savings of refinancing your mortgage.
Tip #3: Consider an Off-Set Account.
An offset account is a savings account that is linked to your mortgage. The balance in your offset account is subtracted from the principal of your mortgage, reducing the amount of interest you pay. For example, if you have a mortgage of $500,000 and an offset account balance of $50,000, you would only pay interest on $450,000. This can save you thousands of dollars in interest over the life of the loan.
Tip #4: Invest in Property Investing.
An offset account is a savings account that is linked to your mortgage. The balance in your offset account is subtracted from the principal of your mortgage, reducing the amount of interest you pay. For example, if you have a mortgage of $500,000 and an offset account balance of $50,000, you would only pay interest on $450,000. This can save you thousands of dollars in interest over the life of the loan.
Tip #5: Implement All 4 Tips Together.
Paying off a mortgage can feel like a daunting task. However, with the right strategies, it’s possible to reduce the time and money spent on mortgage payments.
By implementing all the above 4 tips will help you pay off your mortgage faster:
- Make Extra Repayments. One of the most effective ways to pay off your mortgage faster is by making extra repayments. By increasing the amount you pay each month, you can reduce the total amount of interest you’ll pay over the life of your loan. Even small amounts can make a big difference, so start by adding a little extra each month and work your way up over time.
- Switch to Fortnightly or Weekly Repayments. Another strategy to pay off your mortgage faster is by switching to fortnightly or weekly repayments instead of monthly. This works because there are 26 fortnights in a year, which means you’ll end up making 13 monthly payments instead of 12. This can help you pay off your mortgage faster and reduce the amount of interest you’ll pay over time.
- Use your Offset Account. An offset account is a separate account linked to your mortgage that can help you reduce the amount of interest you pay on your mortgage. By keeping money in your offset account, you can reduce the amount of interest charged on your mortgage. If you have a significant amount of savings, consider using an offset account to reduce the amount of interest you pay on your mortgage.
- Refinance Your Mortgage. Refinancing your mortgage can also help you pay off your mortgage faster. By switching to a lower interest rate or a shorter loan term, you can reduce the amount of interest you pay over time. It’s important to note that refinancing can come with fees, so make sure you do the math before deciding to refinance your mortgage.
Implementing all these tips together can help you pay off your mortgage faster and reduce the total amount of interest you’ll pay over the life of your loan. Use the Neomoney Calculator to see how much you could save by making extra repayments, switching to fortnightly or even weekly repayments. If you’re considering refinancing, speak to a mortgage broker to determine whether it’s the right option for you.
The Importance of Consolidating Debts for Better Financial Management.
As the saying goes, when it comes to real estate, it’s all about “Location, Location, Location.” However, in finance, the key is Consolidation, Consolidation, Consolidation.
Whether you have a high or low income, if you spend beyond your means, your finances will always be a source of stress.
Consolidating high-interest debts such as credit cards and personal loans into one or two loans can reduce your monthly interest expense. If you can manage to live on the same budget as before, the extra money you save each week, fortnight, or month can go directly towards paying off your mortgage.
Consolidation loans can be a helpful tool to help you manage your finances better. By combining your debts into one loan with a lower interest rate, you can save money on interest and simplify your payments.
But it’s important to note that consolidation is not a one-size-fits-all solution. You should seek advice from a mortgage broker or financial advisor to determine if consolidation is the best option for you.
Consolidation loans can also be useful for property investors. If you own multiple investment properties, consolidating your debts can make managing your finances easier and more efficient. This can be particularly helpful if you’re looking to maximise returns or improve your rental yield.
You can use Neomoney’s Extra Repayments Calculator to visualise how much money you could save by paying a little extra each month.
Setting Milestones to Achieve Your Property Ownership Goal.
As you work towards owning your own property, it’s important to set milestones along the way to help you stay motivated and on track. Just like looking out for milestones on a long journey, setting goals and celebrating your achievements can make the journey more enjoyable.
Start by setting achievable milestones, such as saving $1,000 or paying off a certain percentage of your mortgage. When you reach these milestones, reward yourself with a small treat, such as an ice-cream or a movie night. This will help you stay motivated and focused on your end goal.
If you manage to save thousands of dollars, consider treating yourself to a bigger reward, such as a short holiday or a personal item that reminds you of your end goal. This will not only help you celebrate your achievement but also serve as a reminder of why you are working so hard to achieve your property ownership goal.
One way to achieve your milestones faster is to consider refinancing your mortgage to a lower interest rate. This can help you save thousands of dollars in interest over the life of the loan, which you can put towards paying off your mortgage faster or achieving your other financial goals.
In addition, consolidating your other loans, such as credit cards or personal loans, into your mortgage can also help you save money on interest and simplify your finances. However, it’s important to consider the costs of refinancing and consolidation, such as application and exit fees, before making a decision.
With our Neomoney calculators, you can compare the costs and savings of different mortgage options to help you make an informed decision. By setting achievable milestones and celebrating your achievements, you can stay motivated and focused on achieving your property ownership goal.
Maximising Loan Repayment: Tips for Tracking Spending and Setting Goals
As a borrower, you may want to set up a “Set and Forget” loan to make payments and focus on other financial goals. However, if you want to pay off your mortgage more quickly, it’s important to actively track your loan balance and make regular payments. By monitoring your loan balance online, you can see your payments reducing your loan and become more motivated to pay it down faster.
It’s also important to track your spending habits and distinguish between your needs and wants. You can use a number of mobile apps to help you monitor your spending and make informed decisions about where to cut back. If you can save $50 per week by reducing unnecessary spending, you could put that money toward your mortgage and reduce the loan term by 4.2 years. Over time, this can add up to significant savings on interest.
Remember, every dollar counts when it comes to repaying your loan. By setting goals and tracking your progress, you can stay motivated and make steady progress toward becoming debt-free. So, the next time you’re tempted to splurge on an unnecessary purchase, think about how much faster you could pay off your loan by redirecting that money toward your mortgage instead.
