How To Pay Off Your Mortgage Early - March 2023
March 9, 2023 / Written by Rich Harvey
By Guest Blogger, Louisa Sanghera, Principal Broker,
With interest rates rising so quickly over the past 10 months, everyone is feeling some degree of mortgage pain.
We all know that higher interest rates means higher repayments, and none of us want to live with a noose around our neck for the rest of our lives.
So what are some strategies you can use to get that mortgage down faster?
Our last RBA rate hike happened in March, with another 0.25% increase. It bumped up the average principal and interest mortgage as follows:
Based on a 30-year, principal and interest residential loan, assuming an interest rate increase of 0.25% p.a. up to 5.50% p.a. Calculations care of Money Smart’s mortgage calculator.
Now that you have a guideline towards the figures you’re working with, here are some suggestions to pay down your home loan sooner and get that mortgage monkey off your back sooner than later:
- Get a better job. Moving jobs is often a great time to negotiate a decent pay bump. The current unemployment rate is very low and there are plenty of jobs available, so now could be the time to see what else is out there.
- Generate a second income. Again, it’s not ideal to have to trade your time for money on top of your main job, but if you can spare a few hours to drive Uber journeys, deliver UberEats or even rent out a room on Airbnb, you could generate a few hundred dollars a week to offset mortgage increases.
- Refinance your home loan. Refinancing to a cheaper rate can shave a small fortune off your home loan each month. If you can refinance to a lower rate so your
repayment drops, but you keep the amount you’re paying at the as it is right now, you’ll make extra payments towards the principal, helping you repay the loan sooner. You may even qualify for a cashback loan, which delivers a cash injection of $2-4000 directly into your bank account.
If you have a variable home loan with an offset account, you’ll get an even bigger benefit by stashing all of your savings in this account. These savings will reduce the amount of interest you pay.
For instance, if you have $50,000 in your offset account and $600,000 loan, you’ll only pay interest on $550,000. Your monthly repayment stays the same, but the part of the repayment that would have been spent in interest, is put towards your outstanding principal instead.
This allows you to repay greater chunks of the principal each month, helping you repay the loan more quickly.
In fact, I just ran the numbers and on the loan in my example, assuming a principal and interest, $600,000 home loan with a 30-year loan term at 5.5%. With $50,000 worth of savings in the offset account, you could save $172,993 in interest and reduce your loan term by 4 years and 2 months.
Offset accounts are one of the most powerful tools you can use to pay off your mortgage early, but it’s not the only option you have. If you’d like one of our experienced mortgage brokers to undertake a personalised review of your home loan to see what options you have to optimise your situation and own your home outright sooner, contact our friendly team today.
To see what your options are, contact a Mortgage Broker to see what your options are.
Contact us today on 1300 855 022 or visit www.zippyfinancial.com.au
Louisa Sanghera - Director and Principal Award-Winning mortgage broker at Zippy Financial
Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.
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