Fourteen strategies to get the mortgage monkey off your back faster

By Ericka Pingol

A mortgage is probably the biggest investment you would make in your life. It’s also a debt most people would like to pay off as fast as possible. Here are a few hints and tips on how to pay off your mortgage faster:

  1. Make repayments at a higher rate. Making repayment at a higher rate may help you pay off your mortgage a lot faster. Consider getting a loan at the lowest interest rate you can and add 2 or 3 points to your repayment amount. So if you have a loan at about 4% and pay it off at 5% you may not even notice if rates go up. Best of all, you'll be paying off your loan quicker.
     
  2. Pay it off quickly. There are all sorts of strategies for paying less interest on your loan, but most of them boil down to one thing—paying off your mortgage as fast as possible.

For example, if you take out a loan of $400,000 at 5% for 25 years, your repayment may be about $2,338. This equates to a total repayment of $701,508 over the term of your loan.

If you pay the loan out over 10 years rather than 25, your monthly payment will be $4,242 a month. However, the total amount you might repay over the term of the loan will be only $509,114 - saving you a whopping $192,394!

Calculate your loan repayments using our mortgage calculator.

  1. Make more frequent payments. One of the simplest and best strategies that may reduce the term and cost of your loan is to make your repayment on a fortnightly rather than monthly basis. How can this make a difference I hear you ask? It works like this:

Split your monthly payment in two and pay every fortnight. You may hardly feel the difference in terms of your disposable income, but it could make thousands of dollars and years difference over the term of your loan. The reason for this is that there are 26 fortnights in a year, but only 12 months. Paying fortnightly means that you will be effectively making 13 monthly payments every year—this can make a big difference.

  1. Consolidate your debts. Consolidating your debts into one loan may help you pay off your mortgage a bit faster. Most lenders may allow you to consolidate all of your debt under the umbrella of your home loan. This means that instead of paying 15 to 20% on your credit card or personal loan, you may transfer these debts to your home loan and pay it off at 5% (or whatever rate your home loan is).
     
  2. Use your equity. If you have already paid off some of your home, you are said to have equity. Equity is the difference between the current value of your property and the amount you owe the lender.

For example, if you have a property worth $500,000 on which you owe $150,000, you are said to have home equity of $350,000, which you can re-borrow without having to go through the approval process by accessing it through your existing loan.

Many lenders may allow you to borrow using your equity as collateral. Most lenders may allow you to borrow up to about 80% of your home’s appraised value. If you are careful, you can use this equity to your advantage and help to pay off your home loan sooner.

  1. Switch to a lender with a lower rate. It may sound like a simple idea but switching out of your current loan and taking out another one at a lower rate could mean the difference of years and thousands of dollars. If you have a loan that is tricked up with all the features, or even if you have a standard variable loan, you might find that you could get a no frills rate that is as much as a percentage point cheaper than your current loan.

However, before you jump the gun, check out what it will cost you to switch loans.

  1. Forgo minor luxuries. Once you have a mortgage, you may have to sacrifice a few luxuries. Consider changing a few money-eating habits to ones that may save you money—even a little. For example, instead of going to a restaurant during your lunch break, consider a home-cooked meal. It may only save you a few dollars, but it adds up.
     
  2. Stay informed. Keep yourself up to date with what's happening in the marketplace. You might find that there's an opportunity to put yourself well ahead of the game. Rates change, new products and changes in the market itself may allow you to seize an opportunity or negotiate a better deal.
     
  3. Get a cheap rate and invest the difference. When interest rates are low, it is usually safe to say that inflation is also low. Thus, bricks and mortar may not be the best place to invest. Consider getting the cheapest home loan you can find and make the minimum repayment. This allows you to use the extra cash to invest in other, more profitable areas.

You may find that the return you get on shares or some other type of investment means that you have created a bit of profit which you can use to pay off a bigger chunk of your home loan that you might otherwise have been able to do.

But beware - high returns often mean high risks. Before undertaking any investment, invest in a consultation with a qualified financial adviser.

  1. Pay all your mortgage fees and charges up front. Some lenders may allow you to add to the amount you borrow instead of coming up with cash for your upfront costs. While this can seem a blessing try to avoid doing this.

Two thousand odd-dollars might not sound like a huge amount but what could you buy with it if it stayed in your pocket?

  1. Pay your first instalment before it's due. With most new loans, the first instalment may not become due for a month after settlement. If you can manage it (and your lender will let you), pay the first instalment on the settlement date. If you do this, you may be one step ahead of the lender for the term of your loan. Every little bit counts.
     
  2. Shop around and make sure your lender knows it. One of the most powerful tools you can have in the search for the best home loan is information. Make sure you have rung half a dozen lenders and brokers before you start talking to your preferred lender about getting a new loan or refinancing your existing loan.

Make sure you know what rates and features are offered by each of your lender's competitors on comparable products. Be ready to tell the lender what you are looking for and don't be afraid to ask for extras. If they want your business, and know you know what you are talking about, they may be prepared to work that little bit harder to get your business.

Don't be afraid to walk out if you aren't getting the best possible deal you can.

  1. Choose the loan that suits your needs. Choosing a loan is about knowing what you want. Draw up a table of potential home loans and rank them. Make a list of all the features that are important to you and rank them according to importance. Give each feature a score out of five - one for unimportant right through to 5 for indispensable.

Different loans have different purposes so you need to match a loan to your need. Taking out an interest only loan suitable for investors if you are planning to live in the house is just foolish.

  1. Keep an eye out for deals. Rates do sometimes go down as well as up – so keep an eye out for any great rates on offer with one major caveat – check what it will cost you to switch loans. If you DO switch to a lower payment, keep up the rate of you old payments to pay the mortgage down more quickly – you’ll pay less interest overall AND be mortgage-free sooner.

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