How to Pay Off Your Mortgage Early
Did you finance your mortgage to 20 or 30 years? Was it to 15, perhaps? If you are reading this you are likely wondering if it’s possible to pay off your home loan earlier, or if it’s all too hard and you should just keep your cash and stick to the original plan.
A good mentor and friend once told me that life circumstances change often and it’s the wise people who adapt and make the best out of change and available options. Financially speaking, it is always wise to adapt and reassess your plan if it will benefit you in the long run.
There are several changes you can make to help you achieve paying off your mortgage early. Whether you were recently promoted, you want to save money on interest, or you simply want to steamroll your home loan, paying off your mortgage early is something you absolutely can do.
Set Your Loan Repayments to Fortnightly, Not Monthly
Let’s say your mortgage repayments are $1000 per month. If you followed a monthly payment schedule you would do 12 payments every year. Switching to pay $500 per fortnight would convert to 13 monthly payments per year (26 fortnights). Just one more payment per year? Yes! This has minimal impact on your daily budget but can result in a big shift on the duration of your loan. In this case, a $200,000 mortgage loan at a 5% interest rate over 30 years would shorten your loan by 5 years and save you almost $35,000 in interest payments… Now that’s huge savings! If your salary is paid to you weekly or fortnightly, this change is a no-brainer.
Additional Principal Payments
Most lenders allow you to make extra ‘principal only’ payments. Let’s say your mortgage repayments are $948 per month. Why not round it up and pay $1000 or $1050? Paying this extra $50-$100 off your loan every month will save you money on interest and you will pay your loan off sooner… and we are not talking about months, but years sooner. The key point here is that the extra cash you are putting into your mortgage is paying ‘principal only’, not ‘principal plus interest’. This means your extra hard-earned cash is directly paying your loan amount down each month, so you are not wasting any of it on interest in the immediate term and you are also saving loads on interest long term by reducing your loan amount.
Refinance Your Loan
Life changes! Every now and then it’s wise to reassess your circumstances, financial position and lifestyle, as refinancing to a shorter term could work for you. In most cases, shorter term loans can also mean lower interest rates. 30 years is a long time and your financial situation will almost definitely change along the way. What worked for you in your 20’s may no longer be the best option for you in your 40’s. Take the time to reassess your financial priorities and think about your future goals. Refinancing your loan may just help you achieve them!
Here at Peasy we are ready to answer all your questions and help you pay off your mortgage faster! Call us on 1800 3 PEASY or visit us at https://peasy.com.au/