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Tips to Pay off Your Mortgage Faster!

How To Pay Off Your Mortgage Faster

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With improving credit conditions, your Melbourne Mortgage Broker What If We Finance is committed to helping you figure out the fastest way to pay off your mortgage. Our experience has taught us that there are several options available to you to pay off your mortgage faster.

Our tips to pay off the mortgage faster can be summarised as follows:

  1. Reduce the interest rate you pay
  2. Reduce the fees you pay
  3. Make extra repayments
  4. Use your offset or redraw facility effectively

To illustrate the power of the above options we will use an example based on a home loan of $250,000 over 25 years.

Reduce the interest rate you pay

By reducing your interest rate you can save thousands over the life of your loan. If you are paying a standard variable rate this unacceptable. Consider the following?

Reduce the rate you pay by 0.5% from 3.00% to 2.50% and you save $82 per month (repayments reduce from $1,941 to $1,859 per month). This saves you $984 per annum or $24,600 over the life of a $25 year loan. You can see the power of interest rate savings first hand by contacting What If We Finance for a home loan review.

Alternatively, you can also pay mortgage faster if you refinance or switch loans. You can ask your current lender for a better deal, negotiate the length of the new loan or weigh up the cost of lender’s mortgage insurance. 

But if you’re thinking about switching home loans to pay mortgage faster, make sure the benefits outweigh the costs.

Reduce the fees you pay

You can save thousands by finding a loan with no upfront fees or no ongoing fees. No upfront fees saves you around $600 (based on a typical application fee) and a $10 monthly charge saves you around $2500 in fees around the life of the loan.

If you are paying fees, contact What If We Finance to see how you can save potentially thousands.

Make extra repayments

Another way on how to pay off mortgage faster is to make repayments as if you had a loan with a higher interest rate. The extra money will help you pay mortgage faster. If you switch to a loan with a lower rate of interest, continue making the sane repayments you had at the higher rate. Additionally, keep making repayments at the higher rate even if interest rates drop.

Making extra repayments can be one of the most powerful tools when it comes to saving interest and costs. What If We Finance provides the following simple examples to help you understand how you can benefit:

  • You can save up to $40,907 by making extra repayments of $82 a month and reducing your interest rate by 0.50% pa.
  • You can save $5,769 by making extra repayments of $10 a month from the money saved by not paying $10 monthly ongoing fees.
  • You can save $54,003 by splitting your monthly payment in two and paying every fortnight. This equates to paying an extra $136 per month!

Use your offset or redraw facility effectively

What If We Finance has always recommended that you deposit all your savings and income into your home loan account and use an offset account and or redraw facility to use funds for future purchases. When choosing a loan, make sure that fees are not charged when using either of these facilities.

An average balance of $10,000 in an offset or in your loan account over the term of your loan and you can save $49,715 in interest payments or reduce the term of your loan by a further 2 years and 3 months.

Is it practical to pay mortgage faster?

Now that you know how to pay off mortgage faster, should you be paying off your loan as soon as possible? There is no clear-cut answer to this. The best option really depends on your money goals and your current financial situation. The decision is rarely a black and white one.

Let’s dive a bit into the advantages and disadvantages.

Pros of paying off your mortgage faster

There are many benefits to paying off your mortgage loans as soon as possible. To start, you no longer have to make any more monthly payments, providing you with the peace of mind knowing your home is finally yours. 

The extra cash originally reserved for a mortgage can easily go towards travel, hobbies, saving or investing. In other words, you are no longer tied to your mortgage loan.

Other pros include improving creditworthiness and saving money on interest.

  • Improving creditworthiness: Experts agree that closing your mortgage early has a positive impact on your credit score. By eliminating your mortgage early and closing the account in good standing, you become more attractive in the eyes of lenders. It also lowers your debt-to-income ratio.
  • Saving money on interest: Paying off your mortgage early means you save plenty of money on the interest that inevitably adds up over the years. That’s because, with each mortgage payment, you’re not just paying back your home loan, but you’re also paying interest on your loan’s remaining balance. You can save thousands of dollars in interest payments.

Cons of paying off your mortgage early

The only major disadvantage of paying off your home loan fast is that although it eliminates one bill, using the bulk of your disposable income on the mortgage could leave you short for dealing with an unexpected financial crisis or paying off other debt.

In other words, a mortgage will likely cost you less to hang on to than other types of debt with higher interest rates. Spending a large amount of money to pay off mortgage could also mean less money to put toward things like creating an emergency fund or renovating your home.

Pay Mortgage Faster with What If We Finance

As you can see there are several different options you can use to reduce your home loan and tips to pay off mortgage faster. Learning how to pay it off fast also brings forth many advantages to your finances.

Contact What If We Finance today for a brief consultation and we can show you how you can pay off your mortgage sooner.

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