There are many ways you can take action now to reduce that mortgage in coming years.
There are many ways you can take action now to reduce that mortgage in coming years.

14 tips to pay off your mortgage faster

AS SOMEONE looking to retire early, owning a place mortgage-free is high up there on our list of goals.

I know there is a school of thought that it would actually be better to invest surplus funds and not pay down the mortgage.

The thinking is that your mortgage is only costing you say 4.5 per cent per annum in interest. If you invest instead in the share market or an index fund that generates returns of say 9 per cent per annum, you come out ahead.

While the maths makes sense, it is not the approach that we have chosen. Since having kids, the security of a paid-off home is appealing to us.

It will mean that the level of passive income we need to live off for our investments is much less than when we need to service a home loan as well.

If you have an emergency fund and have removed all your consumer high rate debt, then paying down your mortgage can be a great next goal.

14 TIPS TO PAY OFF YOUR MORTGAGE FASTER

1. Add cash windfalls

Bonuses at work, tax refunds, inheritance or any other windfalls are all great ways to make a dent in your mortgage. If you do online surveys or use cashback websites, you could channel this money to your mortgage too.

2. Round up your payments

If your repayment is an odd amount, it could be a good idea to round it up to the nearest 10, 50 or even 100 dollars. You will soon become accustomed to the rounded amount, and the extra dollars can take thousands off your loan.

It is a little bit like how the Acorns App I am using rounds up any purchase I make to the nearest dollar. I never miss the rounded up amount and the balance is building up nicely.

3. Make repayments more frequently

If your repayments are due monthly, try paying the loan back fortnightly or weekly instead.

Paying fortnightly just means that you will end up making an extra monthly payment each year, without noticing it too much.

Rick and Kerrie Stimson sold their Mooroolbark house in Melbourne for more than $1 million, and could certainly buy somewhere mortgage-free with that windfall.
Rick and Kerrie Stimson sold their Mooroolbark house in Melbourne for more than $1 million, and could certainly buy somewhere mortgage-free with that windfall.

4. Don't reduce your repayments

If there is a time when your interest rates go down, it can be wise to keep your repayment at the higher level.

Not only will this save you interest on your loan, if rates head north again you are already sitting in a comfortable position to be able to keep up with the repayments.

5. Ask your bank for a better rate

It is absolutely worth ringing up your bank and letting them know you plan to refinance to another bank. I ring up every single year and I have always ended up with a reduced rate. Having worked in marketing for banks and credit unions, I know that retention team members have a level of discretion in offering you a discount.

6. Consider refinancing

If you ring up your bank as per the point above you will likely get a reduced discount. In some cases however it can be worthwhile refinancing altogether to get an even better deal.

I always use a trusted mortgage broker that I have worked with over the past six years or so to help us refinance any of our loans.

But sometimes it can be tricky to know how to find the right broker to suit your needs.

It costs you nothing to see a broker, so if the first one you meet doesn't feel right for you then it is worth looking for another one until you find one you gel with.

7. Use a 100 per cent offset account

With most loans these days you can attach an offset account. Make sure you get one that is a 100 per cent offset account.

This means that any money you have sitting in this account will help to reduce the interest you pay on your loan.

Think about every way you can put money into your mortgage — including offset accounts, and refinancing your loan.
Think about every way you can put money into your mortgage — including offset accounts, and refinancing your loan.

We put all of our funds in our offset account. If you like to have separate accounts for bills, long-term savings etc then some lenders will let you have multiple offset accounts linked to the one loan. It is worth checking with your lender if they offer this service.

8. Don't let honeymoon and welcome rates fool you

Just as banks give an introductory offer on savings accounts to get you to put your money with them, they do the same with home loans.

They'll offer what sounds like a really great deal, but often after a year or so the rate reverts to a far less competitive interest rate.

Most people don't tend to move their loans that often so this is used as a marketing tactic. There is also sometimes a clause with how long you have to keep the loan with them after the honeymoon rate ends.

When I have done comparisons for myself in the past, intro offer home loans have never worked out best in the long run.

9. Pay your first instalment before it is due

If you have a new loan or have just refinanced, it will be a month before your first repayment is due.

So if, when you first get your loan you make a repayment straight away, this will go straight towards reducing the principal on your loan.

10. Consider a dual-income property

A great way that we use to help us to make our mortgage repayments is to have someone else help pay them too.

A granny flat is a great way to earn passive income to help pay off your mortgage faster.
A granny flat is a great way to earn passive income to help pay off your mortgage faster.

For one of our investment properties, this meant adding a granny flat so that the rent we earn now covers the full repayment as well as any bills for the property.

Even with our current home, we bought a place where we could rent out part of it and live in another part. It has meant that half of our mortgage each month is being paid by someone else.

11. Try AirBnB

Adding a granny flat or renting out part of your house all the time might not appeal to everyone. But you could consider renting out your place when you are on an extended holiday.

Or if you have an area of your house that is separate from the rest, you could use AirBnB on an ongoing basis if it is something you feel comfortable with.

12. Rent out your garage

This is a similar concept to above, but a bit less intrusive then renting out a room.

This option won't work for everyone, but if you live close to the city or a working hub, parking can be in hot demand.

If your car is not there all day then make it work for you earning money.

13. Downsize

This one is a bit more drastic than the rest. But if you have a really large loan and house then considering moving to a smaller place can help you get a loan that is smaller and therefore quicker to pay off.

Kids don’t need a bedroom each. If you downsize to a smaller home you might be able to pay off your property sooner. Sophie and Matt Calic live in a tiny 40sq m house with their three daughters. Picture: Sam Rosewarne
Kids don’t need a bedroom each. If you downsize to a smaller home you might be able to pay off your property sooner. Sophie and Matt Calic live in a tiny 40sq m house with their three daughters. Picture: Sam Rosewarne

You want to make sure you do the sums first to see if it will make sense for you to do this, as you will incur costs such as stamp duty, moving costs and legal costs to sell and move.

We have myself, my husband and two kids in a two-bedroom place. In an ideal world we would have a bit more room, but our goal to retire early means we make do with the space.

I shared a room growing up with my sister so it was the norm back then.

14. Move to a regional city

The price of buying and maintaining a home in Sydney where we live now is very expensive.

We are considering a move to a regional area. That would mean if we sell up here then we can buy a place mortgage-free.

Opportunities for work have always been a concern for me. It has been the main reason we have not considered a move earlier. But as I learn more about legitimate work from home opportunities, I start to see it could be a real possibility for us

This was originally published by Get Money Wise and is reproduced here with permission.



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