Interest rates in Australia are still at an all-time low and a number of new digital lenders have entered the market. Which makes this the best time to look at your current financial situation and take action to pay off your mortgage faster. The quicker you pay your loan, the closer you’ll be to reaching the coveted debt-free status.
For those who don’t know where to start, here are five ways to pay off your mortgage faster.
1. Find a lower, competitive interest rate
The mortgage market is highly competitive at the moment, with over 4,000 lenders vying for your attention. Which means it will be easy to find a lower interest rate. If your bank won’t budge, check out alternative leaders who are putting pressure on the Big 4.
How do you ask for a better rate? Work out which features of your current loan you want to keep and compare the interest rates on similar loans at different lenders. If you find a better rate elsewhere, you should grab it. Alternatively, ask your current lender to match the reduced rate or offer you a cheaper alternative.
Note: It’s important to ensure you are seen as a good candidate with a good credit rating and the ability to meet repayments when applying for a loan.
2. Stay away from ‘interest-only’
There are benefits associated with an interest-only loan. One is the fact that lower repayments allow you to pay less each month and retain more cash liquidity. However, an interest-only loan won’t assist you in paying off your mortgage quicker.
Why? Choosing to only pay the interest on your loan for a set period of time means that once the interest-only period expires, the required principal amount will need to be paid off at a higher propensity (which can sometimes be thousands of extra dollars in interest).
WATCH: Ben Nash shares his own top 3 tips to pay off your mortgage faster:
3. Unlock the power of redraw and offset
Offset accounts are similar to an everyday savings bank account, but they are linked to your home or investment loan.
Instead of being paid separate interest on your savings by the bank, the value of any cash in an offset account is deducted from your home loan balance (with interest calculated on the difference).
This can be a great way to make your savings work for you. You’ll generally save more in home loan interest than you’d likely earn on a separate savings account. Especially now that interest rates are so low.
4. Increase your regular repayment amount
Increasing your regular repayment amount is a simple way to pay off your home loan faster.
Major banks calculate interest on a daily basis, which means during a typical 25-year principal and interest mortgage, most of your payments in the first five years will go towards paying off interest. This means anything extra you put in during that time will reduce the amount of interest you pay.
You don’t have to repay a whole lot extra to reap valuable rewards. Even a dollar or two a day could help you shorten the life of your loan.
5. Make extra lump sum repayments
If you’ve received a lump-sum payment, consider diverting these funds to your loan.
Gather up your end-of-year bonuses, tax refund, or spare cash from selling unwanted items around the house. Everything helps and over time allocating these additional funds makes a big difference to help pay off your mortgage faster.
Note: Check with your mortgage provider to determine whether you will need to pay any fees for making any extra repayments.
While not all Aussies are in the financial position to pay off their entire mortgage within the next year or so, it’s important to remember there are a lot of options available. No matter what your situation, now is the best time to scope out the best deals on the market, especially while interest rates remain low.