How to Pay Off Your Mortgage Faster

Signing on the dotted line for your new home is an exciting time… until you see how long you’ve committed to pay it off. Whether it’s 15 or 30 years, having a mortgage - regardless of how big - can be daunting. If you’ve ever looked at the seemingly endless amount of debt and wondered how to pay off your mortgage faster, here are some things you can do. 

Why should you pay off your mortgage faster? 

Why should you pay off your mortgage faster? Simple - you’ll be a lot closer to achieving financial freedom. By paying your mortgage off sooner, you’ll significantly reduce the interest you’d otherwise have to pay and become one step closer to living the life you want.  Based upon an average home loan in Australia of $608,448 over 25 years at an interest rate of 5.42%, making an extra contribution per month above the minimum repayment amount could save you 11 years and one month in time or $245,211 in interest.

How to pay off your mortgage faster 

Sounds like a dream, right? Fortunately, there are a few things you can do to turn this dream into a reality. 

Refinance and review your rate regularly

We can’t stress the importance of this one enough! Regularly refinancing and reviewing your home loan rate can save you thousands in interest charges. You should be looking to refinance every two years or after any significant life changes.  Check with your Inovayt mortgage broker whether you’re receiving the best rate to reduce the interest you pay. Your broker can then assist you when deciding whether to change lenders. Provided the benefits of refinancing outweigh the fees of staying with your current lender, it’s a good idea to make the switch.  Want to find out how much refinancing could save you? Check out our free refinancing calculator. 

Set yourself a goal

Setting yourself a goal can help provide some motivation and structure to pay off your mortgage faster. Ensure your goal is SMART (that’s Specific, Measurable, Achievable, Relevant, and Time-bound). For example, your goal might be to contribute a specific amount of extra money to your minimum mortgage repayments to reduce your loan length by five years).  

Increase your regular repayment amount

If your budget allows, consider increasing your minimum repayment amount. This is an excellent opportunity for those with lower interest rates or those with the capacity to repay their loan.  Any extra money you pay will go towards your principal amount rather than just covering the interest. By reducing the total amount you owe, you’re reducing the interest you need to pay.   While interest rates are rising, this strategy may not be as achievable, but if you want to look into it, have a chat with your Inovayt mortgage broker.  

Make additional lump sum payments

Similar to increasing your ongoing mortgage repayments, another way to pay off your mortgage sooner is to make additional lump sum payments to your debt. If you receive an unbudgeted amount of money (e.g. work bonus, tax return, inheritance), consider adding this straight to your mortgage account rather than your personal account. If you haven’t anticipated this money coming through, you won’t miss it when it’s gone.  Making additional lump sum repayments (especially early on in your loan) can significantly impact your home loan and the length of the loan.  Take the following example: Your required monthly repayment amount is $2,485 on a $400,000 loan with a loan term of 25 years. Over the loan term, you’ll pay $29,820 in one year ($2,485 x 12); over 25 years, you’ll pay $745,500. Five years into the loan, you receive an inheritance of $70,000. Dividing the money, you put $40,000 into your home loan and $30,000 into your bank account. Making the lump sum repayment of $40,000 means that instead of paying off your loan after 25 years, you will reduce the loan term by more than three years – assuming your repayments remain the same – and save more than $70,000 in interest. The redraw balance will also gradually reduce in line with the loan term.

Set up an offset account

When you bought your house, your mortgage broker should have spoken with you about setting up an offset account.  An offset account is a savings or transaction account linked to your mortgage. The balance in this account is offset against your outstanding loan balance, reducing the interest you pay. By depositing your savings into an offset account, you effectively reduce the principal amount on which interest is calculated. This can lead to substantial savings over the life of your mortgage. Talk with your Inovayt mortgage broker today about setting up an offset account to offset or reduce the interest you’re paying on your mortgage. 

Pay fortnightly instead of monthly

It might sound strange, but you can pay more off your mortgage by switching from monthly to fortnightly repayments. This is because there are 26 fortnights in a year but only 12 months. By paying fortnightly, you can pay the equivalent of 13 months a year instead of 12.  Chat with your mortgage broker, and they can assist you with setting up fortnightly mortgage repayments. 

Consolidate your debts

Interest rate rises don’t only affect your home loan, so any other loans you have will likely increase in interest, too. A rate rise on each of these can become overwhelming if you have multiple loans (such as personal loans, car loans, credit cards, etc).  By consolidating your debt into one repayment, you may save money overall, as the interest rates on credit cards and personal loans are generally higher than home loan interest rates. Curious about how much you could save with a debt consolidation loan? Try our free debt consolidation calculator. 

Don’t lower your repayments if interest rates fall

If your interest rate falls, reducing your repayments to the new minimum amount can be tempting. While having some extra cash is a nice idea, keeping your repayments the same as when you were paying a higher interest rate (if you can) is a great way to keep chipping away at your principal amount. 

How can an Inovayt mortgage broker help you pay off your mortgage faster?

At Inovayt, we’re here to help you achieve financial freedom. Mortgages are often one of the most significant debts you’ll experience, making it only natural that you’ll want to pay it off early. If you’d like to pay off your mortgage faster, get in touch with an Inovayt mortgage broker today.