30 November 2021 | By Lending People
Five ways to pay off your mortgage faster
Most people take 25–30 years to pay off a mortgage. We've got some simple tips to pay off your home loan faster, saving you thousands of dollars in interest.
Taking on a mortgage is a big commitment. It takes most people around 25–30 years to own their home outright. As you know, the interest you pay on top continues to accumulate the longer you’re in debt, so if you can pay off your home loan any faster, you will save tens of thousands of dollars. We’ve got some tips to do just that.
#1. Consider a mortgage with some flexibility
When you take on a mortgage, it’s important that you read the fine print. A fixed interest rate will allow you to secure a low rate for an agreed period, but that comes with restrictions. Extra repayments will often incur fees, preventing you from paying off your mortgage any faster.
Many people are choosing to split their mortgage so that a portion of it has a fixed interest rate, and the other portion has a floating rate. Floating interest rates will fluctuate with the market, but you have the freedom to make extra repayments when you’re able to, which can help to pay off your home loan faster.
To learn more about fixed, floating and mixed interest rates, check out our guide.
#2. Round up your repayments
While fixed-rate home loans often have fees attached to extra repayments, many banks and lenders will have a little wiggle room, allowing you to pay an extra $1,000 per month, for example. Again, you’ll need to read the fine print to understand what the threshold is, but if you increase your regular repayments as much as you can without triggering any fees, you could take years off your home loan, saving yourself a lot of money that would otherwise be spent on interest.
#3. Look At Switching to fortnightly repayments
When you pay monthly, you make 12 payments in a year. When you pay fortnightly, you end up making 26 repayments a year—essentially paying an extra month annually. The extra payments will probably feel insignificant to you, but they can shave a few years off your home loan and save you a lot of money over the course of your mortgage.
#4. What about extra lump sum repayments?
If you come into extra money whether that be from an inheritance, a tax refund, a bonus, whatever really—consider using it to pay off your mortgage faster and save yourself money on interest in the long run.
If you have a fixed rate home loan, you may encounter some restrictions around this, but it’s worthwhile looking at your terms more closely. Some fixed-rate mortgages allow for lump-sum payments of up to 5% of the loan annually.
If you have a floating rate mortgage, there shouldn’t be any issues with making any lump-sum payments.
#5. Think about keeping your repayments the same, as the rates go down
Don’t decrease your repayments with your interest rate
Sometimes mortgage interest rates go down—you might refinance at the end of your term to secure a lower rate, or your floating rate might go down because of what’s happening in the market. If this happens, try to continue paying the same amount you were with the higher rate. It’s tempting to lower your repayments if the opportunity presents itself but by keeping your repayments the same, you’ll pay off your principal faster and be mortgage-free much sooner.
Like we said, a home loan is a big commitment but if you’re clever about it, you can take years off your mortgage. If you want some guidance about how to best structure your home loan to be able to pay it off faster, get in touch with one of our advisers.
This blog is provided for general information purposes and is not a recommendation you enter into or exit any particular loans or insurance policy. Information on the website does not consider your particular circumstances, including your objectives, financial situation or needs. We recommend you seek advice from a financial adviser before taking any action as appropriate. The Lending People Limited (FSP240365) is a licensed financial advice provider and can provide advice on some types of personal loans. Find out more about The Lending People and how we may be able to help you.