A mortgage is a non-deductible expense that takes up a considerable proportion of the typical household budget. As such, it’s a type of debt that should be paid off as soon as possible. Homeowners can reduce the term of a 30-year mortgage by decades and save hundreds of thousands of dollars by managing their expenses and making more repayments. In the end, paying off a mortgage faster frees you to do more things with your money.
1. Use a budget
A budget sets a solid foundation for making extra repayments and managing expenses. Create a realistic budget, record your expenditure, and regularly review the budget. Check your weekly expenses to identify where you can save more money to divert to your mortgage.
2. Use an offset account
Offset accounts are popular products that can help homeowners pay off their mortgage more quickly. Any amount you deposit into your linked offset account will accrue interest, and this interest is automatically deducted from the interest on your mortgage.
3. Use a credit card to manage expenses
In addition to an offset account, you can use a credit card to pay for all your monthly expenses while your salary or savings is kept in your offset account until you withdraw some of it to pay off the credit card. This technique means you pay no interest on your credit card, as the balance is paid in full at the end of the month or interest-free period. While the extra interest earned on your savings is small, over time it adds up.
4. Save your change
A novel technique to save more is to deposit all the change you receive in coins in a piggy bank or container at home. Collate the change a few times a year and use it to make extra repayments. The extra thousands saved from your gold and silver coins can remove years from your mortgage.
5. Pay more often and make extra repayments
Paying fortnightly instead of monthly means you’ll end up paying 26 times rather than 12 times over the course of a year. Paying more often, even if you don’t make extra repayments, helps you save on interest. Making extra repayments where possible is also vital for saving more on interest and paying down on the principal component of the mortgage.
6. Use your tax return
Rather than splurging with your tax return, use it to make an extra repayment on your mortgage. Develop the habit of using any other lump sums you might receive in the same way, whether these irregular inflows of cash are gifts or windfalls from selling personal items.
7. Set post-mortgage goals
Setting post-mortgage goals can keep you motivated to save more and pay more into your mortgage. Write a list of things you would like to do once you have paid off your mortgage and stick it up on the fridge or back of a door where you will see it from time to time.
8. Use mortgage calculators
Monitor the forecast on your home loan and use mortgage calculators to calculate how much you can save by making extra repayments and paying more frequently. By keeping track, you’ll be more motivated to follow your budget and save even more!