Given the lengthy nature of mortgages, even modest increases in repayments can have a significant impact. Increasing your repayments not only shortens the loan term but also reduces the total interest paid over time.
Here are four effective ways to help pay off your mortgage faster.
Increase your Regular Repayments
Let's say you've bought a home for $750,000 with a $150,000 deposit over a 30-year term at 6% per annum. Increasing your monthly repayments from $3,597 to $3,897 could cut six years from your mortgage term. Moreover, assuming your interest rate stays at 6%, that extra $300 each month could save you a staggering $147,406 in interest over the loan's lifespan. Always check with your mortgage provider for potential early repayment charges.
Switch to Fortnightly Repayments
Switching from monthly to fortnightly repayments means making two extra repayments per year. For a $500,000 loan over 30 years at 4.0% p.a., these additional payments could shorten the mortgage by over four years and save nearly $60,000 in interest.
Make Lump Sum Repayments
If you come into extra money from sources like inheritance, tax refunds, or asset sales, consider allocating it towards your mortgage. Lump sum payment rules vary among mortgages. Some fixed-rate loans allow up to 5% extra repayments annually without penalties, while others might restrict extra repayments. With floating mortgages, you can typically make extra repayments penalty-free. Unlike regular repayments, where a portion goes to interest, lump sum payments directly reduce the loan amount, saving time and interest.
Don't Reduce Repayments When Interest Rates Drop
While decreasing repayments when interest rates fall may be tempting, maintaining or increasing repayments can be more beneficial. By keeping repayments steady, a more significant percentage goes towards reducing the principal, accelerating your path to a mortgage-free future.
Paying off a long-term mortgage can seem daunting, but with the right strategies, you could find yourself mortgage-free sooner than you think. Send us a few details here if you'd to discuss your needs.
This article is for informational purposes only and should not be considered as financial advice. It is always recommended to consult with a qualified financial professional before making any financial decisions based on your individual circumstances.
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