Having a mortgage can be one of the best draining things in your life for your finances.
Paying interest on hundreds of thousands of dollars of debt is an expensive exercise. Although Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) will likely appreciate you for it.
Debt isn’t great, and until it’s paid off you might not feel that your property isn’t truly yours.
That’s why it could be a good idea to utilise one of these three tactics to pay off your mortgage quicker:
Get a better interest rate
Good borrowers are worth their weight in gold in the current climate of rising loan arrears. Unless your current interest rate is less than 4% then you can probably get a better deal from your current bank by negotiating or looking for a new bank.
Don’t forget, 1% costs $1,000 a year in interest for each $100,000 you’ve borrowed. You can save many thousands of dollars over the course of a loan by getting a lower interest rate. If you get the discount and continue paying the same payment as the old interest rate then you can pay off your loan quicker.
Additional loan payments
The most obvious way to pay off your mortgage quicker is to make additional payments. You could save thousands of dollars over the course of a loan by making more payments at the start.
One of the ways to make your payments add up is to split your monthly payment in half and pay that every fortnight. The monthly payment will still be fairly similar but you will be better off over the course of the year, and particularly the life of the loan.
Utilise your offset account
If your loan has an offset account attached then you should be using it as much as possible.
Any cash you put in there is ‘earning’ interest at a higher interest rate – the interest rate of your mortgage – and it’s tax free! If you had the money in a normal savings account it would mean a lower interest rate that’s generating taxable income.
The savings on interest can be utilised to pay down your loan faster, making compound interest work in your favour.
The quicker you can become debt free the quicker you can build your net worth. Once you’ve paid off your mortgage you can funnel a lot more money into growing your assets.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019