How to pay off your mortgage faster?

WeMoney

Paying off your mortgage is one of those life moments to celebrate. Many spend years chipping away with loan repayments, forever trying to reach our savings goals. From low-rate loans to paying fortnightly, in this article, we will go through five ways to repay your home loan faster. 

Let’s get to the following commonly asked questions:

  • Is it smart to pay off your house early?
  • What is the fastest way to pay off a mortgage?
  • How long does it take an average person to pay off a house?
  • How can I pay off my 30-year mortgage in 10 years?

Q1. Is it smart to pay off your house early?

If you can afford to, paying off your loan will save you money. Over the life of your loan, it builds interest. When you make additional repayments or refinance your loan, you will pay off your loan faster, reducing overall interest payments. 

Without monthly mortgage payments, you can free up money for other expenses such as car insurance or health insurance. 

However, consider your financial situation before trying to pay off your home loan early. Use a loan repayments calculator to check that your monthly payments are within your budget. Remember, home buying has many other costs, such as:

  • Stamp duty.
  • Home Insurance.
  • Contents Insurance.
  • Mortgage Insurance.

Important: If you own investment property, consider income tax and maintenance fees when budgeting.

https://wemoney.sng.link/D7n27/sz5t?psn=BLOG

Q2. What is the fastest way to pay off a mortgage?

Buying a home is one of the most significant commitments in many people's lives. Repaying expensive loan amounts is a substantial financial commitment. 

There are many ways to reduce the financial burden and pay your loan sooner, for instance, by making extra repayments towards the principal amount. 

Note: Using a mortgage repayment calculator can help determine how much money making extra payments will save you in the long run.

Beware of honeymoon or introductory rates

Some lenders and mortgage brokers may offer attractive introductory rates when buying your first home. Even second or third-time mortgage applicants could be offered lower rates for a honeymoon period.

However, when you compare home loans, check the comparison rate. Many lower home loan rates cost more when you factor in additional fees and charges. 

Moreover, some lenders increase the variable rate after a few years. This higher rate might be more than you would pay with regular mortgage loans.

Step 1: Make extra repayments

One of the simplest ways to pay off your loan is to make lump sum payments toward the principal amount. If you can, pay an extra lump sum whenever you have spare cash—perhaps from a tax rebate or promotion at work. 

Alternatively, increasing each month's repayment by an extra few dollars is another good option to pay off your mortgage faster. It can be helpful to use an extra repayment calculator to see how much money you would save. 

Important: Check that your lender doesn't charge prepayment penalties.

Step 2: Pay fortnightly rather than monthly

Changing the repayment frequency is another easy way to pay off the remaining loan principal. Fortnightly repayment schedules mean that you make one extra monthly payment per year.

For instance, if you usually pay $500 for twelve months, this equals $6,000 in a year. Whereas, if you repay $250 every two weeks for a year (totalling 26 payments), you will pay $6,500 in the same time frame. 

You can use a cost calculator to determine how fortnightly repayments will impact your mortgage.

Step 3: Use an offset account 

Offset accounts are transaction accounts linked to property loans. The amount of money in the bank account reduces the interest you need to pay—it offsets your interest payments, saving you money. Use an offset calculator to see how this can impact your mortgage.

Let's say you keep $5,000 in your savings account and have a remaining repayment amount of $70,000. You will only pay interest on $65,000. When you withdraw money from the offset account, you will continue paying interest on the total amount. 

Similarly, consider a redraw facility where you can withdraw extra repayments to your home loan.

Note: Some offset accounts have associated ongoing fees. Use a home loan repayment calculator to check whether this is a good option for you.

Step 4: Keep your repayments the same if interest rates fall 

Variable rate home loans have fluctuating interest rates. Continuing to pay the same monthly amount when the rates fall can help you repay your loan faster. 

Remember, variable home loans don't always mean a lower interest rate. You might see a rate rise and have to increase your payments. Consider a fixed-rate home loan to avoid potential interest rate rises.

Q3. How long does it take an average person to pay off a house?

Home buyers typically take mortgages out for a maximum loan term of 25 to 30 years. The average Australian mortgage in 2022 costs $610,000, which means paying over $20,000 yearly for your home equity.

To pay off your mortgage faster, you might need to pay upwards of $2,000 monthly. 

How can I pay off my 30-year mortgage in 10 years? 

Plenty of strategies exist to repay your mortgage early. However, repaying a 30-year term in 10 years requires severe discipline and financial ability—you should seek financial advice.

Using home loan calculators can help determine how much you will need to pay each month.

Consolidate your debts

Debt consolidation means taking out one loan to repay and cover all your debts, such as:

However, debt consolidation will not always save you money. Speak to home loan experts and use a mortgage payoff calculator to determine if this is the right option for you.

Consider refinancing 

If you want to pay off your home loan quickly, consider refinancing to a different type of loan. You can refinance home loans to an interest-only mortgage, low rate home loans, variable or fixed rates, or reduce the loan term. 

  • Interest-only home loans: You will ease your monthly financial burden but pay off your loan more slowly. Switching to interest and principal loans is an option.
  • Shorter loan term: Reduce your 20-year period to 15 or 10 years. 
  • Variable or fixed loan rates: Refinance to lower interest rates.

Note: Before refinancing, use a borrowing power calculator and check your credit score to determine whether you can negotiate a better deal.

Summing up

Paying off your home loan early requires financial savvy and discipline. Use a mortgage calculator to determine your options, considering the options discussed. If your financial situation improves, consider refinancing or making additional repayments.

Speak to financial advisers to budget your income so you can repay your mortgage early and live financially independent.

Wait! We’d love to hear your thoughts

If you enjoy using our app, please take a moment to rate it in the App Store. Your feedback in the past has tremendously helped us at WeMoney to improve the app to help it be the best that it can be. A massive thanks to each one of you for making that happen!

Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

Turn your learnings into practice
Try WeMoney today.