3 simple steps to get your mortgage paid off quicker & save yourself a small fortune in the process

Why? Well the more quickly you pay down your mortgage, the less you pay in interest.

Less interest means less for the bank and more for you.

Here’s the example:

Assume a $500,000 mortgage at 5%.

Repayments on a 30-year loan are $2,700 per month

(5% sounds high now, but we are looking at a 30-year loan and we aren’t going to be at 2% forever).

Just FYI the interest cost is $472,000 (mind-blowing, I know)

1. Pay fortnightly

Chop that $2,700 in half and pay $1,350 per fortnight. Really simple change.

Because there are 26 fortnights, you pay 13 months a year instead of 12.

You’d pay an extra $2,700 each year ($52 a week)

Outcome? The mortgage gets paid off 5 years sooner and saves you $87,000 in interest.

2. Pay down lump sums

What did you do with last year’s tax refund or bonus? How about the one a couple of years ago? Take some of it on the day it arrives and put it straight into your mortgage. Now it’s gone and you can’t spend it, but importantly it’s working for you, saving you money every single day it’s in there.

Let’s put some numbers to it. If between a bonus, pay rise or tax return there’s an extra $3,000 and you put that into your mortgage each year, you just saved around $94,000 in interest.

3. Ask for a lower rate

You can shop around, move from bank to bank and go through the application process, but it can be painful. I’m not saying to ignore this option but start with a chat to your bank. No threats or ultimatums, just a simple “hey, what can you do to lower my rate?”. I’ve done this personally and for clients.

Even if you only get 0.1% reduction, on that $500,000 loan you just made $500 a year. Putting some numbers to it as above, you’re looking at saving of $24,000 over the life of the loan. $24k for a single question sounds pretty good.

In summary, adding the 3 steps together would mean the hypothetical 30-year mortgage is paid off 9 years sooner saving $163,000 in interest.

Results will vary, but it’s enough to get you thinking.

If you want to see what the numbers look like for you, check out https://moneysmart.gov.au/home-loans/mortgage-calculator there are some simple, effective tools for weighing up the impacts of smart decisions.

Finally, the disclaimers. The information above is factual information only and is not intended to be financial product advice, and should not be relied upon as such. The information is general in nature and may omit details that could be significant to your particular circumstances. We recommend that you seek appropriate professional advice before making any financial decisions

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