SHOULD YOU PAY OFF YOUR MORTGAGE EARLY?

It’s a question finance experts have been debating for years. Some say it makes financial sense to invest that money in the property market, while others say you won’t ever regret being 100% debt free.

There are many great reasons for wanting to pay off your mortgage fast — not in the least part because it can save you a lot of money in interest payments and for most that feeling of a shrinking mortgage is the definition of being free.

You don’t need to adhere to a 30-year schedule if you don’t want to. Here are 5 ways you can accelerate your repayment clock and pay off your mortgage earlier.

1. Cut Back On Expenses
This should be obvious, but to make larger extra payments may require you to cut back on your other expenses. Do you really use that expensive phone plan? Are there other “luxury” expenses that you could easily do without for a while?

2. Switch from 30 years to 15 years
Most of us start out buying our first homes with 30 years mortgages, because it’s what’s easiest and gets us into the house at the lowest monthly mortgage payment. However, have you considered refinancing from a 30 to a 15 year mortgage? For e.g. Repayment on a $400,000 mortgage at 4% for 30 years is $440 per week vs $682 per week for 15 years. Extra $242 per week will pay off your loan in half the time (Obviously these figures will change if the interest rate go up or down).

3. Round up payments
By increasing monthly payments to the next $100, $500, or some other amount you choose, you can shave years off your mortgage payments. This money essentially prepays your mortgage and lowers your balance so that you owe less overall.

4. Make an extra payment
One extra payment a year can make a big difference. There are a few ways to approach this plan. Making half a mortgage payment every two weeks (instead of a full mortgage payment every month) will result in an extra payment — you’re making 26 payments a year with this plan. Another way to accomplish this is to calculate a new payment by multiplying your monthly payment by 13 and dividing by 12.

5. Use Offset Account Effectively
By regularly depositing extra savings into an offset account saves you on the interest and gives you flexibility. For more information on using Offset account efficiently please read my article on HOW AN OFFSET ACCOUNT CAN HELP YOU PAY OFF YOUR HOME LOAN SOONER.

Whether you plan to pay off your mortgage early or not, some of these steps can be applied to other types of debt. It all boils down to hard work. It required discipline, organisation and most importantly, the right attitude.

If you’d like to know more, please contact us for a FREE no obligation consultation on 03 8390 5855 or email mitesh@thinkandgrowfinance.com.au