Your mortgage is likely the largest loan you’ll ever take out. No matter how long you take to pay it off, it’s a large monthly expense with a lot of money paid in interest. Even with today’s lower interest rates, the extra money you pay over a 20 or 30-year loan is substantial.
How good would it be to pay this loan off more quickly and pay thousands of dollars less in interest? This may sound like a difficult thing to do, but rest assured, there are some easy ways you can pay off your debt faster, saving more money for the things that make you happy.
10 Ways To Pay Off Your Mortgage More Quickly
Make Extra Mortgage Payments
Making more frequents payments will help pay your debt off sooner, that’s mortgage basics 101. But the ways to do this and the impacts it has on the overall interest paid may not be as obvious. One of the best strategies is to switch from monthly repayments to fortnightly repayments.
Think about it this way. There are only 12 months in a year, but 26 fortnights. More payments mean paying your mortgage off faster and paying less interest.
Seemingly small differences in payment amounts and frequencies often won’t make a difference in your daily life, but can significantly impact the amount of interest you pay throughout your term.
Pay Your Mortgage Off Faster
The bulk of the mortgage money you pay comes in the form of interest accrued over the term of your loan. The difference between paying your mortgage over 30 years vs 20 years vs 10 years can differ by hundreds of thousands of dollars.
While you need to consult a mortgage specialist and closely assess your financial situation, if you can afford to pay it off earlier, you’ll save a ton of money.
As an example:
A $500,000 loan at 3% interest paid over 30 years will have a monthly cost of $2,118 and a total cost of $762,487.
A $500,000 loan at 3% interest paid over 20 years will have a monthly cost of $2,783 and a total cost of $667,917
What’s the total cost difference over the mortgage life? $94,570! By opting for a 20-year loan instead of a 30-year loan, you’ve saved nearly 100k over 10 years. That’s quite a lot of money, isn’t it?!
You can check for yourself how different term lengths affect monthly and total repayments with a handy mortgage calculator.
Make Higher Repayments
Another strategy is to make regular mortgage repayments as if you had a higher interest rate than you do. If you switch to a lower interest rate, keep your repayment amounts the same if you’re able to. You’ll pay off your loan quicker and save a lot on interest.
Find A Lower Interest Rate
A mortgage is a very easy thing to just set and forget. Many people have their re-payments set automatically and keep them out of mind. But taking a bit of time to shop around for lower rates, even marginally lower rates, can save you thousands of dollars throughout your loan.
Before you switch, it’s important to check if there are exit fees for switching lenders, what those are, and how it compares to the projected savings you’ll see from making the switch. In this case, a little of your time now can save you big in the long run.
Consolidate Your Debt
If you have multiple debts from car loans, credit card debt, school debt, many banks will let you consolidate your debt and refinance it into your home loan. Consolidating means you can reduce your higher interest rate loans by putting them under the umbrella of your home mortgage, and the much lower mortgage interest rate.
Save On The Small Things
It can sometimes be hard to appreciate or understand just how much money we spend on things we buy regularly. Most people are surprised to hear that their $5 daily coffees alone can cost over $1300 for the year.
After you get your mortgage, every dollar counts. And any money you can save by cutting out some of the more frivolous and luxury items can go towards paying off our mortgage faster. Often substantial money can be saved without giving up much convenience.
Getting yourself a coffee machine and making one to go every day before work? Not that hard. Preparing meals in advance on the weekend so you don’t need to buy a $10-$15 lunch every day? Not that hard. All of these things together can add up to big bucks.
You should also speak to your lender about the financial package deals they have available. Often you can receive free consultations, fee-free transaction accounts, and credit cards, and discounted insurances. Every bit counts, and it’s worth asking for anything that might help save a few dollars.
Get An Off-Set Account
An offset account is an account linked to your mortgage whereby any money in that account offsets the money you owe. It’s a great way to offset the interest you pay on your loan. For example – If you have a $600,000 loan and $50,000 in your offset account, you’ll only be paying interest on $550,000 instead of the full $600,000.
This gives you the flexibility to have some money and savings available to you while bringing down the amount of your loan that’s generating interest.
Get A Portable Loan
You’re more likely than not to move before fully paying off your first mortgage. So if there is any chance that you’ll move during your loan, you’ll want to ensure that your mortgage options allow you to port your loan to a new property or that there aren’t extraordinarily high fees for doing so.
It’s best to ask a lot of questions as porting your mortgage can result in thousands of dollars in fees with discharging your old mortgage and establishing your new mortgage.
Shop Around & Look At The Smaller Lenders
These days, great mortgage rates and terms aren’t only found at the big banks. Mortgage brokers have enabled smaller lenders to pop up and force down the interest rates previously offered by only a few select banks.
Don’t worry too much if some lenders you come across aren’t household names. If they get into financial trouble, just remember, you have their money, not the other way around. These lenders (and your mortgage) are protected against bankruptcies and other business failings, so if they can offer you a better rate or better terms, it’s a good idea to hear them out.
A smaller lender will often give you much better customer service and a better overall mortgage experience. They can often provide offers that the big banks won’t, such as longer terms, 100% offset, needing less of a deposit, and lower ongoing fees. This isn’t always the case, but there are more options out there than ever before and it’s worth your time to shop around for the best option for you.
There you have it. 10 tips for saving more money by paying your mortgage loan off faster. Do you need help navigating the world of home mortgages? Have more questions that weren’t answered in the article? Contact the mortgage experts at Pinsky Mortgage. A good mortgage broker will save you time and money, helping you find the best mortgage product that will fit your unique needs and preferences.Request An Appointment