Tips To Repay Your Mortgage Quicker

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Tips To Repay Your Mortgage Quicker

Mortgages are long, financial relationships and a debt that most would like to repay as quick as they can. We have a few tips below on how to end this relationship, sooner rather than later.

Make Extra Repayments

For home buyers, the most common mortgage requires both principal and interest payments. On a typical 25-year mortgage, the first five to eight years are when you’re primarily paying off interest, so anything extra paid will help shorten the lifespan of your loan and cut your interest bill. Make extra payments as early as possible as these loans are interest-heavy upfront, so the faster you repay the better.

Consider the frequency with which you make repayments to reduce interest, such as weekly or fortnightly.

Mortgage Offset Account

A mortgage offset account can save interest on your loan. Your mortgage is linked to a savings account into which your salary and other cash can be deposited and from which you withdraw to pay bills, credit cards, etc. For the period of time money sits in this account, it is ‘offset’ against your loan and so reduces your interest bill.

Make an Annual Lump Sum Payment

Utilise a windfall, such as an inheritance or work bonus, as well as tax refunds, and apply it directly to your principal. Check your mortgage document to find out how often you can repay and in what amount.

Prepay a little every month

Get a copy of your loan amortisation schedule which will show the breakdown of interest and principal. If you’re making a payment for November, for example, look at the next line down on the principal reduction line and you will see that the principal reduction for the next month, December, is say $24. Making that $24 payment early, means that your “true” mortgage balance is one payment less after the principal is prepaid. So in essence, you’d be making an extra payment each year.

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