For many Australians, paying off your mortgage can be a key focus. Of course, there are a number of good reasons why people dream about debt-free home ownership. Paying off your mortgage early can mean that your cash is freed up to spend on other things – like lifestyle goals or it can be directed to other investments.

The key to driving your mortgage down is paying off the principal component as quickly as possible. This is the original amount you borrowed minus the interest. Here are a number of simple strategies to help you achieve this goal:

Make extra repayments – The most obvious and effective way to pay your mortgage off quicker is to simply make additional repayments. Since any principal repayments immediately reduce the amount of interest you pay, even small contributions will add up over the long run.

Switch to fortnightly payments – Rather than repaying your mortgage on a monthly basis, typical of most lenders, pay your mortgage fortnightly (26 repayments over the year). Each year, you’ll make the equivalent of 13 monthly repayments instead of the standard 12!

Convert to a 100 per cent offset account – When you deposit your earnings into an offset account linked to your home loan, the amount is treated as a deduction from the principal when interest is calculated, effectively reducing the interest accruing. If your loan repayments are set up as interest only, this will also reduce your loan repayments. Channel the saved interest back into your loan or keep all additional funds in the offset account, however, make sure that you don’t pay a higher rate of interest for a mortgage with this facility, which could erode any potential savings.

Consider a professional package – Some lenders offer special packages to ‘low risk’ professionals with loans of around $100,000 and upwards. Professional packages offer a reduced interest rate, typically 0.3 – 0.7 per cent lower and in some cases more, though the annual fees are generally higher than standard loans. Most professional packages also include a fee-free transaction or offset account and a credit card among other concessions.

Use a line of credit – Line of credit mortgages allow you to channel additional funds directly into your home loan, reducing the principal and the interest charged. A credit card with an interest-free period can be used to meet monthly outgoings, which is then repaid from the line of credit at the end of the month. Discipline and organisation are essential to use this product to maximum effect.

Understand your household budget – Knowing where all your money goes each week can also make a real difference. Even squeezing an extra $10 out of the weekly budget to put onto your mortgage can help. For example, if you had a $300,000 mortgage over 25 years, with an interest rate of 9.0%, your monthly repayment would be $2,518. An extra $40 per month would save you $20,922 in interest and would cut one year and four months of your mortgage. Source: www.yourmortgage.com.au

Mortgage reduction is hard work but there is a pay off. Owning your own home outright is an enormous milestone that offers financial security and peace of mind.
If you need a hand getting your money on track, call ipac on 1800 626 881 today for a no-obligation appointment with a professional financial adviser.