Simple Steps to Pay Off Your Mortgage Faster
Paying off your home loan ahead of schedule might seem ambitious, but with a few smart strategies, it’s entirely achievable and can save you tens of thousands in interest. For many Australians, their mortgage is the single biggest financial burden they have. Reducing it faster not only delivers peace of mind, but also gives you financial freedom sooner.
Start Strong with a Bigger Deposit
If you’re still in the process of buying, one of the best ways to set yourself up for success is by starting with a deposit of at least 20 per cent. A larger deposit reduces your loan-to-value (LVR) ratio, which may give you access to lower interest rates and can help you avoid Lender’s Mortgage Insurance (LMI). This can save you thousands before you even make your first repayment.
Set a Budget and Prioritise Repayments
Creating a clear budget is essential. Allocate your home loan repayment as your top priority each pay cycle, before savings or discretionary spending. This ensures you stay consistent and committed to chipping away at the loan. Even a small weekly surplus directed towards your mortgage can make a significant difference over time.
Make the Switch to Fortnightly Repayments
Many homeowners stick to monthly repayments by default. However, switching to fortnightly repayments can effectively help you make an extra monthly payment each year. There are 26 fortnights in a year, compared to 12 months, so by paying half your monthly repayment every two weeks, you’ll squeeze in an additional full month’s worth of repayments annually, cutting years off your loan term.
Pay a Little Extra, Whenever You Can
If your loan allows it, making additional repayments is one of the simplest and most effective ways to get ahead. This could be in the form of rounding up your repayments (e.g. paying $1,600 instead of $1,500), using your tax return, a bonus, or any unexpected income. The earlier in your loan term you do this, the more you’ll reduce the interest you pay.
Use an Offset Account or Redraw Facility
Offset accounts are a powerful tool for homeowners. By keeping savings in an account linked to your mortgage, you reduce the balance on which interest is charged, helping you pay off the loan sooner. Similarly, redraw facilities allow you to make extra repayments but still access those funds if needed, offering flexibility and financial control.
Consider a Split Loan Strategy
Having a combination of fixed and variable rates on your mortgage can offer both security and flexibility. A fixed portion provides certainty with your repayments, while a variable portion typically allows for unlimited extra repayments. This gives you the chance to pay down your loan faster while still managing risk from interest rate changes.
Renegotiate Your Interest Rate Regularly
A good broker should conduct regular periodic loan reviews through the life of your loan, to ensure you always remain on the most competitive deal possible. Interest rates fluctuate, and staying loyal to one lender doesn’t always pay off. A small reduction in your rate can result in substantial savings over the life of your loan. Your broker should do 6 monthly or yearly reviews to ensure that your current lender stays honest, or move you to one that will.
Put Your Home to Work
If you have a spare room or granny flat, consider renting it out (subject to council approval, where necessary), whether short-term or long-term, and directing that income straight into your mortgage. Even a few hundred dollars extra a month can significantly shorten your loan term and reduce interest charges.
Get Professional Advice
Everyone’s situation is different. Speaking to a mortgage broker and/or financial adviser can help you understand which features and repayment strategies suit your needs. A tailored plan, based on your financial goals and habits, will give you the best shot at paying off your mortgage faster.