We all want to pay off our home mortgage and own our homes outright, but it can feel like a huge undertaking.
This article looks at simple but effective ways to achieve this goal.
You can knock years off your mortgage by employing smart strategies including paying more than the minimum and making more frequent payments.
Here are a few of the more effective strategies.
Make extra repayments
Increasing how much you pay, particularly in the early years, can have massive long-term benefits. Many bank and lender websites have calculators that approximate the effects of changing your repayments. Plug in your loan and payment details to see what difference a change could make, or ask your lender to crunch the numbers for you.
For example let’s say you have a $400,000 variable loan, with a rate of 7.5%. The loan has twenty five years left to run at your present repayment levels – the minimum fortnightly repayment. Adding $100 per fortnight to the minimum fortnightly repayment would take over four years off the life of the loan and over $97,000 in interest off the loan.
Professional packages
Depending on the amount you’ve borrowed (or sometimes your salary or line of work), you may be eligible for a low-rate “professional package”.
Although you typically have to pay an annual package fee these packages can be very worthwhile, especially as some of them offer interest rates of around 0.7% lower than standard rates.
Taking a $400,000 loan and using an example of 7.5% as a standard variable rate, here is the difference a professional package rate can have. The minimum monthly repayments would reduce from $2,950 per month to $2,775 per month, a saving of $175 per month. Paying this into your home loan would save over three and a half years and nearly $70,000 in payments.
There are also a few relationship benefits with these professional package loans. Whilst not the main reason for taking a package, these can be useful. Typical benefits include fee-free transaction or credit card accounts, discount insurance and financial advice.
Pay fortnightly
Another clever strategy to repay your mortgage more quickly is to divide the required payment by two and pay fortnightly.
The difference here is that rather than make 12 monthly mortgage payments a year, you end up paying the equivalent of roughly 13 which of course speeds up your repayments. So this is a subtle twist on the strategy of making extra repayments into your home loan.
Taking our example of a $400,000 loan and an interest rate of 6.8% with a 25 year term this strategy would take four years off the life of the loan.
Shop around
There are hundreds of different loans on the market from a large range of home loan lenders. Their home loan products have widely different interest rates and features. Also, many of the lenders run special limited-time offers, or don’t market their products directly to the public.
By using the services of a mortgage broker in Melbourne, a borrower can secure the best and most cost-effective home loan for their specific needs.
Keep your other debts in check
There is no point focusing on putting all your money into the house while incurring credit card debt.
This is particularly important given that most other debts such as credit cards charge a much higher rate of interest than your home loan.
As a result if your credit card has got out of hand, it may be worthwhile considering consolidating your debt by rolling it into your mortgage.
However, while you will benefit from the lower interest rate, you should be mindful that what you are really doing is turning what should be short-term debt into long-term debt.
To offset this you should increase the home loan repayments – and of course, not build up the credit card debt again.
Summary
Paying off your home loan as quickly as possible is the dream of most borrowers. Through smart thinking there are many strategies that will help you achieve this end. Feel free to speak with us, your professional mortgage brokers for some more suggestions.
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