If buying your own home is one of the great Australian dreams, then owning it outright is virtually a fantasy! We all want to be mortgage free one day, but how may of us actually achieve it? These tips and tricks may not help you to pay off your mortgage overnight, but they’ll definitely help you to get there sooner.
Before you begin employing any debt reduction strategies, however, it’s important to take stock of your current financial situation and lifestyle, advises Steven Ramage, head of mortgages at Citibank.
“Give some thought to where your career is headed and your plans for the future. For example, is a salary increase likely?” he says.
“Or, you may intend to spend some time travelling, or want to start a family. These could all have a significant impact on your budget and financial situation, both now and in the future.”
Taking the above into consideration, you can then begin to formulate a plan to pay off your mortgage as quickly as possible.
Citibank offers the following advice to help you fast track your way to financial freedom.
Put your savings to good use
An offset savings account lets you maintain your savings while whittling away your mortgage. It's a tax-friendly way to become mortgage free faster, and it is generally available at no extra cost to you. Speak with your lender or mortgage broker to find out how you may be able to add an offset account to your loan package.
Make extra payments
Even tiny additional repayments can make a big difference. For instance, if you give up just one coffee each week and tip that $3.50 into your mortgage, you could save $8,000 in total interest on a $250,000 loan at 7.5% p.a. interest, over the 24 remaining years of a loan term. Just imagine what you could do with extra payments of $50 per week?!
Schedule an annual mortgage health check
Mortgages are no longer a one-size-fits-all products – there are dozens of different loan products available these days, each with their own features, benefits and fees. Review your loan at least annually to audit the amount of interest and the fees that you’re paying, to make sure you're getting the most out of your mortgage.
Dump lump-sum payments into your loan or offset
Paying larger amounts into your loan can shorten the life of the loan significantly, and provide a substantial saving on interest. So if you come into unexpected money – such as a nice tax return or a cash Christmas bonus – consider dumping at least half of the money into your mortgage or offset account. You’ll not only save thousands of dollars worth of interest over the course of your loan, but if you pay it straight off your mortgage, you’ll also be ahead in your repayments.
Make fortnightly payments
You can reduce the cost of your mortgage by making your repayments fortnightly instead of monthly. If your mortgage repayment is $3,000 per month, then pay $1,500 per fortnight. By doing this, you effectively make a total annual repayment of $39,000 ($1,500 x 26 weeks) rather than $36,000 ($3,000 x 12), which takes you one giant step closer towards paying off your mortgage for good.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan