Top 10 Mortgage Reduction Tips to get Debt-Free Faster
Feeling the strain of your mortgage? If so, you’re not alone.
According to the Australian Bureau of Statistics, the average home loan was $388,100 in March 2018. But with an average loan term of 30 years, you’ll end up paying much, much more than that in interest… making financial freedom feel like a pipedream.
A high mortgage payment can leave you with little to cover your regular expenses and nothing extra to set aside for the future.
If you’re wondering how you can lower your monthly mortgage and meet your money goals faster, here are 10 tips for reducing your mortgage payments:
1. Pay Fortnightly vs. Monthly
This is one of the easiest ways to pay off your mortgage faster.
Let’s say your monthly mortgage payment is $2000. If you pay the usual $2000 per month, you’ll end up paying in $24000 per year.
However, if you make a $1000 repayment every 2 weeks, you’ll pay in $26000 because there are 26 fortnights a year.
Utilising this simple strategy, you will reduce the amount of interest you pay over time so that you’re debt free faster.
Just be sure your lender doesn’t penalise you for extra repayments before you implement this strategy.
2. Pay off the Principal A.S.A.P.
Unless you’re an investor, you’ll want to avoid interest-only loans and attack both the principal and interest right from the start.
The sooner you can hit the principal, the faster you can pay off your mortgage since you’ll be paying back interest on a smaller amount.
3. Refinance at a Lower Rate
If your existing home loan no longer suits your needs, consider renegotiating your current rate or moving to a new lender.
This can result in massive savings and help reduce the amount of time it will take you to pay off your loan. If you refinance to a lower rate but keep your repayments the same, you’ll pay it off even faster.
Always consult with a trusted financial advisor before refinancing to avoid potential pitfalls and ensure you have a minimum 80% loan-to-value ratio with your home’s equity.
4. Open an Offset Account
One of the reasons your monthly mortgage payments are so high is because you’re paying so much in interest.
However, if you have extra savings from an inheritance or the sale of a vehicle, you can ask the bank to set up an offset account.
This is a savings account linked to your mortgage that allows you to substantially reduce the amount of interest you’re charged on your loan.
For example, your mortgage balance is $250,000. But you have $20,000 in an offset account. Instead of being charged interest on a $250,000 loan, you will only be charged interest on $230,000 – the difference between the loan and the offset account balance.
This won’t change your repayment amount, but it will allow you to pay more towards the principal so that the balance of your loan goes down quicker.
In the above example, if you have $20,000 set aside in an offset account from day one, you can reduce your loan term by 4years, 1 month, and reduce the amount of interest you owe by around $69,685 (based on a 30 year loan at 5.5% p.a.).
In addition, you can still access the money in your offset account in the case of an emergency – or to pay for that dream vacation you’ve been saving for!
5. Ask for Professional Discounts
Often lenders offer special discounts and benefits to people in a specific profession.
For example, if you’re a certified medical professional, you may be able to waive the Lenders Mortgage Insurance to help you pay more towards the principal from day one.
Find out what you’re entitled to so that you get the best possible deal!
6. Leverage Your Equity
If you have paid off some of your home, you now have “equity” – or the difference between the current value of your property and the amount owed the lender.
What few Australians understand is you can leverage this equity to pay off your home loan more efficiently.
For example, you could use your equity as collateral for a loan to renovate your home and increase its value.
Or, you might want to consider using your equity to invest in a rental property as another stream of income with tax benefits. Of course, if you do decide to use your equity in this way, you’ll want to work with a professional who specialises in this area to minimise risks and maximise your returns.
7. Round Up Payments
“Trick” yourself into making extra repayments and getting out of debt early by rounding up your monthly repayment.
According to an article on yourmortgage.com.au, if you have an average home loan of $350,000 at 7% over 30 years and you round up your monthly repayment from $2,329 to $2,500, you could repay your loan 4 years early and save over $69,000 in interest!
8. Consolidate Your Debt
Another sure-fire way to keep your mortgage payments manageable is to protect yourself against rising interest rates. If your home loan rate rises, so will your credit card rates and other loans.
That’s why, if you own equity in your home and have good credit, you may want to consider consolidating all of your debts into your home loan to keep interest rates steady.
This strategy can help improve your cash flow and savings position while making repayments more affordable with lower home loan rates.
9. Get a Loan Health Check
Is your loan still right for you?
Letting your mortgage roll along without ever thinking about it is one of the biggest mistakes you can make as a homeowner. Rates change, features change, and new opportunities in the market can mean there may be a better offer out there waiting for you.
A trusted financial advisor can help you find the most effective loan for your needs and lifestyle right now without you having to go shop around yourself – saving you time and money.
10. Target Other Sources of Debt
If you’re feeling the stranglehold of debt, your mortgage might not be the problem.
More often than not, credit card debt is what’s keeping Aussies from getting ahead financially.
By targeting and prioritizing your most pressing areas of debt, you can improve your overall cash flow and reduce some of the pressure.
Want to Reduce Your Monthly Mortgage Payments…
But Not Sure Where to Start?
Whether you’re a first-time home buyer looking for the right loan at the right rate, you’re looking to refinance, or you want to consolidate your loans and save big in interest, we can help.
Our team has over 50 years combined experience in finance, home loans, and debt reduction, and we tailor each mortgage reduction plan according to your unique needs and situation.
With all the conflicting information out there, it’s hard to know where to start reducing your monthly mortgage payments and getting back on track to financial freedom. That’s why you can count on the team of experts at Loftus Wealth to analyse your current situation, maximise your opportunities, and create a custom roadmap to achieve your money goals.