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Paying off the mortgage may sound like a dreary trudge to the end of a marathon’s finish line. However, there are options available for those who currently have a debt from a loan for their mortgage, and wish to reduce the time they spend paying it off. Here are a few simple ways to ensure that your mortgage debt decreases over less time.
Switching to fortnightly repayments from monthly could potentially increase the amount you are actually paying back on your mortgage. By paying half the monthly amount every two weeks, you’ll be making the equivalent of an extra month’s repayment each year (due to there being 26 fortnights in a year, as opposed to paying once a month over the year).
If the interest rate of your mortgage loan is too high, it may be worthwhile finding a lower interest rate in an alternative loan. Work out what features of the loan are ones that you would like to keep, and compare the interest rate on similar loans. If you can find a better rate elsewhere, you can ask your current lender to match it or offer you a cheaper alternative. Shop around to see what the best options for your particular loan may be. If you choose to switch your home loan to another lender, ensure that the benefits from that loan will outweigh the fees that you will have to pay to close your current loan and apply for another.
If you can afford to do so, making extra repayments on your mortgage can often cut your loan repayment time by years. If your mortgage is a typical 25-year principal and interest mortgage, most of your payments during the first five to eight years will go towards paying off the interest from your loan. If you put in extra payments during that period of time, you could potentially reduce the amount of interest that you pay and shorten the loan’s lifespan overall. Simple ways to make these extra repayments could include putting your tax refund or bonus into your mortgage. These extra repayments could incur a fee though, so always check with your loan provider if that could be the case.
You can also choose to make higher repayments, as though you had a loan with a higher rate of interest. If you switch to a loan with a lower interest rate, you can continue to make those repayments at the same value of the higher interest rate repayments. This method again can decrease the overall time you will spend paying off a home loan.
An offset account is something that you can also consider creating to assist in paying off your mortgage debt. It is a savings or transaction account linked to your mortgage, where the balance of the offset account reduces the amount that you owe on your mortgage. It helps to pay off the mortgage faster and reduces the amount of interest that you will pay overall.
Most home loans are principal and interest loans, which means that any repayments reduce the principal (the amount borrowed) and cover the interest for the period. An interest-only loan means that you will only be paying the interest on the amount that you have borrowed, over a set period of time. The principal does not reduce during the interest-only period, which means that the debt does not reduce and you will in fact end up paying more interest. Paying both the principal and the interest is a simple and the best way to get your mortgage paid off faster.
You can also speak with us or your lender about other options for paying back mortgage debt a little quicker.