Shortening Your Mortgage's Life

With the beginning of a new year we see several articles on finance, credit card debt reduction, budgeting, financial education etc....

I thought this is an opportune time to share my "Seven Shortening Tips" on reducing the life of your mortgage.

1 - Up your repayments

The key to this tip is do what you can. Try first by increasing your repayments by 5% to start with and if possible then continue to increase in 5% increments up to what your income v expenses will allow.

2 - Change the frequency of your repayments

You probably already know this one but by simply changing your repayments from monthly to fortnightly will get you an extra months repayment into your home loan each year and cut your mortgage by a number of years.

3 - Link an offset account or use the redraw facility

Majority of mortgages have a redraw facility built-in (loan type will play a determining factor here) so use this to deposit any extra savings into, as this will reduce the balance and hence the interest calculated on the outstanding loan amount will be less which simply means you are paying more off the principal each month. Redraw facilities can have certain restrictions like minimum withdrawal limits or extra fees (always worth checking what the T&Cs are with redraw facilities).

Alternatively linking a transactional account to your mortgage as an offset account works similar to a redraw facility but is more convenient regarding everyday use and potentially less restrictive.

4 - Ask for a rate reduction

This one is probably the easiest tips to carry out. My recommendation is to call your finance broker and have a quick chat to them about your current rate. If you don't ask you won't get. Just look at the below infographic, nothing more to say.

5 - Deposit any extra lump sums of money

With any extra income received throughout the year, such as a bonus or inheritance, deposit it directly into your mortgage to reduce the balance and hence the interest payable.

6 - Make an extra repayment every three to six months

In your budget plan attempt to allow for a minimum of two extra repayments per year, one each six months. If your loan repayments are $1,800 per month this will just equate to $75 extra per week. The below shows the impact that just one extra repayment a year can have on a $250,000 loan.

7 - Review your mortgage every year

Over the past twelve months there have been a number of changes in the lending environment from lender policy movements to differential interest rates.

If you haven't looked at your mortgage for over a year, then contact a finance broker and have them conduct a review of not only your mortgage but of your individual circumstances.

With any loan requirements, new or existing, I always recommend seeking out a professional finance broker

Regards

Dino Pacella

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Founder of National Finance Brokers Day

Disclaimer:

This content has been prepared for general information purposes only, all views expressed are my own and is not (and cannot be construed or relied upon as) personal advice, as it does not take into account your personal, financial situation or market conditions.