We all agree that it is the great Australian dream to own their own home and as it is usually the biggest investment most of us will make in our lifetimes, and is usually a non-deductible liability for taxation purposes, it is in our best interest to pay the debt off as quickly as possible to reduce our long term non-deductible interest repayments to the financier. But how many of us actually manage to do it.
If you are interested in reducing/repaying your mortgage and speeding up this process the following tried and true methods may assist you.
1. Setting up your loan/mortgage
Have your financier set up your mortgage with an Offset Account attached. When you use your Offset account to accumulate savings, you will reduce the amount of interest you will be charged on your home loan eg. $400,000 loan and $100,000 saved in your offset account, your bank will only charge your loan interest on $300,000, which not only reduces the interest you pay but can reduce the term of your loan by years.
2. Have your Salary paid directly into your Offset Account.
As interest on these accounts is usually paid daily, the longer you can maintain a higher savings dollar balance in your account can contribute immensely to reducing interest calculated on your loan/mortgage.
3. Setup your loan repayments to coincide with your pay cycle
Having your loan repayments deducted on your pay cycle reduces the debt amount more quickly and reduces the interest you will pay eg. weekly loan repayments will reduce your interest significantly more than a monthly repayment.
4. Deposit any surplus funds directly onto your loan/mortgage
If you should have a windfall or receive any additional lump sums, depositing these funds can reduce not only your balance owing but the interest which will be payable therefore it is another way to shorten the term of your loan and own your home more quickly.
5. Refinance your mortgage
Although we usually sign up for the long term with our home loans, when interest rates are low and terms perhaps more favourable, you should consider refinancing your mortgage, which can save you thousands in interest, fees and other charges. Financiers change their mortgage products regularly to compete in the market and if you have an older style product you should look around and take advantage of the newer products on offer. This strategy alone can save you thousands in the long term.