Simple Tips to Pay Off Your Mortgage Faster

Simple Tips to Pay Off Your Mortgage Faster

Your mortgage is likely the largest burden on your budget. It’s a debt that most people want to eliminate as quickly as possible. The less time you spend paying off your mortgage, the more money you save, and the quicker your path to financial freedom. While it may seem like an uphill battle, following some simple tips can help you pay off your mortgage much faster than you might expect.

Purchase a Home You Can Afford

One of the biggest mistakes people make is purchasing a home that stretches their budget too far. Examine your monthly budget and determine what you actually want to spend on housing—it will likely be much less than what the bank says you can afford.

Skip the Honeymoon Period

Many lenders offer honeymoon or introductory rates as marketing tools. These loans start with a lower introductory rate that later switches to a much higher variable interest rate. While attractive at first, they often lead to higher-than-market rates and hefty refinancing or break fees.

Pay Down Your Other Debts

A golden rule of debt repayment is to clear the most expensive debts first. Prioritize paying down high-interest debts (e.g., personal loans and credit cards) to save money that can then be used to pay off your mortgage faster.

Hit the Principal Early

In the first few years, it may seem like you’re only paying interest and not reducing the principal. This is common with compound interest loans. It’s important to add every dollar you can above your minimum repayment amount. This will mean that down the track, you’ll be paying interest on a smaller principal amount.

Pay Loan Fees and Charges Upfront

Your lender might allow you to include fees and charges in the loan, but this just adds to your principal and the time it takes to pay off your loan. If you can, pay these upfront.

Pay Extra

Every extra dollar you pay on your mortgage reduces the interest accrued. Increasing your repayments, even by a small amount, can significantly shorten the life of your mortgage and save you a lot of money over time.

Change to Weekly or Fortnightly Payments

Increasing the frequency of your payments can save interest. By week three of each month, you will have already paid three-quarters of the monthly amount. Since interest is calculated daily, this adds up over time to save you substantially by the end of your mortgage.

Set Up an Offset Account

Offset accounts are savings or transaction accounts linked to your mortgage. Whatever amount is in the savings account temporarily reduces the principal, thus reducing the interest on your loan.

Don’t Waste Lump Sums of Money

If you come into a lump sum of money (e.g., inheritance, work bonus, or tax refund), put as much as you can directly into your mortgage. This will decrease the principal amount owing and, therefore, the interest you pay.

If Interest Rates Fall, Don’t Lower Your Payments

When interest rates fall, many people lower their payments. Instead, keep your repayments the same. This will help you pay off your loan faster.

Welcome Home

By doing the hard work now, you can pay off your mortgage in the quickest time frame possible, saving you thousands of dollars and years of repayments. At JKL, we’re here to support you every step of the way on your journey to financial freedom.

Experience our JKL real estate family. We’ll put the welcome mat out for you!