You’ve found your family’s castle, you’ve been approved for a mortgage, and now you can have the keys to your very own kingdom.
On the Mortgage Guy blog, we like to keep things positive and emphasise opportunities…but truthfully, mortgage stress is a real part of our culture. But luckily for you, it can be avoided by using your smarts, determination and discipline.
Are you prepared to pay off your mortgage faster? Here’s a simplified checklist of what I provide for my own clients when we’re working out a strategy for how to pay off their mortgage early.
- Financial health check
It all begins with a solid foundation. You and your mortgage broker should ensure that you have your mortgage loan set up optimally (for you, not the banks). This will include making sure you have the right interest rate for your budget, lifestyle and financial goals. It should also include making sure you use the right kind of bank account to turbo blast your mortgage repayments. Which leads us to point 2.
- Offset account
If you take out a home loan with a bank, the chances are that you’ll receive an offset account as a part of your home loan package. The chances are that you won’t know what this is, because the banks didn’t take the time to explain it to you. Why? Because they don’t want you to pay off your mortgage faster. Crazy, right?
Well, now I’m going to explain it to you.
I’m a fan of offset accounts, because they help you save on interest. The way it works is simple: your minimum monthly repayments are calculated on how much is needed per month to pay off your loan, plus any interest that’s been accrued.
If you have an offset account linked to your home loan, you actually offset the amount owing. An offset account is a normal bank account that is linked to your loan. If you have $10, 000 in your offset, and $100, 000 in your loan account, the interest you pay will be calculated at $90, 000. Every dollar that’s sitting in your offset account is working for you, so make sure you’re paid directly into your offset account, and don’t use separate savings accounts. Your goal is to make sure you have as much money in that account as possible to minimise your interest payments. Which brings us to point number 3
- Financial discipline
If you’re the type who loves an EOFY sale, you’re going to need to apply extreme discipline. You need to keep your balance high, because interest calculations are carried out daily. Set up your bills to be paid via direct debit, and don’t get an ATM card or credit card attached to the account.
- Automate your mortgage repayments
You’re likely a responsible, independent person who knows how to pay bills on time. But sometimes, people like to leave things to the last minute. Call it the rush of the 11th hour or delayed teenage rebellion, but people just loathe to pay their bills on time! Don’t be an outlaw here – save that for weekend away or take on an extreme sport. Delayed or missed payments look bad to lenders, and will hurt your chances of getting more finance in the future. Set everything up so you don’t even have to think about it.
- Be a goody-two-shoes
God, didn’t you just hate that girl in class who’d raise her hand all the damn time? What a pain in the neck. Well, I’m asking you to be her. Smug Susan is probably running her own ASX-listed business by now, so you can afford to take a leaf out of her book. Schedule a recurring transfer for an extra amount each month. It could be $50, or $250, depending on your budget. It all adds up in the long run, and you’ll get ahead of your repayments.
So there you have it – my fast and easy tips for paying off your mortgage early. Of course, that’s the watered down version of events. Want to know more? Call 1300 288 366 for a complimentary consultation. I can help you reach your financial goals faster with practical home loan advice that benefits you, not the banks!