Paying off your mortgage earlier has substantial financial benefits long term. This is because you will pay less interest sooner and for a shorter time. Of course, paying down your mortgage faster, is easier said than done! But some strategies help; once you’re aware of them, you can use them as and when you can.
Budgeting and money management
Before making any financial decisions, you need to know your finances. With today’s automatic payment options, the ability to buy with a click of a button. Thanks to many helpful subscription services and apps, it’s very easy to lose track of where your money is going.
First, analyse your spending over the last 3-6 months – There are many different online tools to use. You can also just as easily, export your transactions into a spreadsheet and categorise them in a way that makes sense to you.
Once you know your spending, you can decide what you want to change. Maybe the money you spent eating out or on takeaways shocked you, and you want to cut back. Or perhaps you’ve realised that there are several subscriptions you don’t use that are small amounts but add up. These should be cancelled immediately.
Using what you now know about your finances and spending habits, create a realistic budget that focuses on paying down your mortgage.
Refinancing and restructuring
Once you have your finances understood and in control, you will know how much truly discretionary income you have and can decide how much you want to put towards your mortgage.
Refinancing or restructuring to increase your monthly payment is a great way to commit to paying off your mortgage sooner. Even a small increase will add up over time; check out our mortgage calculator, which includes a section that shows how much money you can save and how much earlier you can pay off your mortgage by increasing your monthly payments. This increased payment strategy should only be used when your income is predictable and secure, as you commit to paying the higher amount each month.
More flexible options such as offset mortgage accounts or revolving credit accounts allow you to put more money towards your mortgage while still having access to the funds if necessary. If you do have to use the money, you’ll at least have benefited from lower interest payments while the money was in a mortgage account. Remember – each interest payment is calculated against the amount owing at the time. Budget a monthly amount you can put aside and set up an automatic payment to keep you on track.
In some circumstances, you may be able to refinance to get a lower interest rate. This is especially true if you’re with a second tier lender but may now qualify for a loan from a bank. Talk to a mortgage adviser to find out if you can get a better interest rate.
Make lump sum payments
Should you get any windfalls, bonuses or other influxes of cash, make paying your mortgage the priority. Paying a lump sum will instantly reduce the amount of interest you pay, and ultimately you will pay off your mortgage faster.
With these strategies, you can pay your mortgage off faster!
- Budgeting and money management. Take the time to understand and manage your money; only then can you know how much more you can pay towards your mortgage.
- Refinancing and restructuring. Get your mortgage set up right to enable you to pay it off sooner.
- Lump sum payments. When you get a chunk of change, prioritise your mortgage. The resulting long-term savings will make the lump sum worth even more.
Paying off your mortgage quicker may feel daunting, but using these strategies when appropriate will pay off hugely in the long term.
Are you wondering if your mortgage is optimally structured for your circumstances? Get in touch with us today. We can check whether your mortgage is right for you currently and help you identify whether there are opportunities for you to pay your mortgage off earlier.