The simplest way to pay off your mortgage sooner is to make bigger mortgage repayments and get the money into your loan sooner.
Interest on a home loan is calculated on the daily balance, so reduce the balance and more of your repayments go towards the principle and not an interest bill. It’s that simple.
Strategies like paying weekly and fortnightly work well because they match your pay cycle, so it feels easier to send money from your wage each week or fortnight – and – because most lenders calculate a weekly repayment by dividing the monthly repayment by 4 & there aren’t exactly 4 weeks in every month you end up paying a whole month’s worth of additional repayments each year, without even feeling it. This would save you just under $40,000 and 4 years on an average $350,000 loan over the term of the loan.
If you are paid monthly – don’t hold back repayments to make weekly repayments because you’ve heard how much better it is, instead use an offset account to have your monthly wage save you interest while you live during the month, and, consider increasing your direct debit to the loan by 1/12th, or more!
Even paying in as little as $10 a week extra can save an additional $9,000 in interest and another year over the term of the loan.
While is isn’t saving you interest on your mortgage, higher interest loans like personal loans and credit cards are a bigger drain on your cash so it pays to focus on getting rid of these high interest loans to free up even more cash to really drive down your home loan balance.
The key is to start act now – you pay most interest up front while the balance is highest; and as your wages increase try to add even more to your repayments to accelerate the effect.
And don’t forget to regularly health check your mortgage – the quickest way to save interest is to reduce your interest rate and if you have been in your current loan for 2 years or more it’s very likely you can get a saving here.
Western weekender article https://issuu.com/weekenderpenrith/docs/propertysep23/26