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What is the best way to pay off my mortgage faster?

Buying a home is a big achievement and one that should be celebrated. But it can be difficult to live in the long term with mortgage repayments taking up a large part of your earnings. Is there a way to get your mortgage paid off faster and live debt-free?

Why would I want to pay off my mortgage quickly?

Even though you technically don’t own your home outright when you have a mortgage, it does feel like you’ve achieved that dream of home ownership when you finally move in somewhere that lets you put nails in the walls. Does it really matter if you’re only slowing chipping away at your mortgage?

Your home loan has interest attached to it, so the bigger your mortgage, the more money you’re paying on top of that original purchase price of your house. You can end up spending a lot more in the long run if you’re only paying small amounts off your mortgage. Paying it off faster means spending less interest because that total amount is going down. 

Tip 1: Make more frequent payments

This is a really simple way to start reducing that mortgage, and therefore the interest you’re paying. Because interest on home loans is calculated daily, making payments more frequently will reduce the interest you pay over the term of your loan. If you currently make a mortgage repayment monthly but you’re getting paid every week, consider switching so that an amount gets paid off your mortgage every pay day.

Tip 2: Consider refinancing and a different provider

The home loan you selected when first purchasing your property may not be the best for your needs anymore. Refinancing gives you the option to reconsider what will work best for you and your current circumstances. The greatest benefit of refinancing is that it can allow you to access a lower interest rate.

This may involve shopping around for a different provider who can offer a more competitive rate. Compare your options and look beyond the traditional big four banks for perks like lower fees. If you do end up with a lower interest rate, consider continuing to repay your home loan at the higher rate. The extra money will reduce your principal (or the amount owing) so you can pay off the total mortgage more quickly.

Tip 3: Avoid interest only loans

If your goal is to pay off your mortgage as quickly as possible, an interest only loan is not going to be the right option for you. These loans leave your principal amount untouched and you only pay the interest; good for when money is a bit tight, but not if you’re trying to reduce your loan amount! You need to be paying off the principal to make any headway towards being mortgage free.

Tip 4: Make savings on other areas

It can be hard to prioritise paying a mortgage when you have a lot of other expenses to account for. If you haven’t done a household budget for a while, it’s a worthwhile exercise to see where you can make potential savings. Perhaps you can cut back on eating out or on items like clothes and electronics.

It’s also a good time to reconsider your other big home-related expenses like electricity, gas and internet. Compare the price you’re paying on these monthly bills and see if you can get a better deal somewhere else. The money you save can go straight into your mortgage, getting you to the debt-free life sooner!

Sally Writes 24 Nov 2020