It has been well documented that the increase in interest rates is adversely affecting our standard of living. This negative influence is also exacerbated by the rise in monthly mortgage repayments exceeding our wage growth rate.
The following represent four strategies that you should consider to reduce your mortgage liability.
1. Change from monthly repayments to fortnightly repayments.
If you’re paying your mortgage monthly, consider switching to fortnightly repayments. It may seem like a trivial move, but by paying half the monthly amount every two weeks, you can make the equivalent of an extra month’s repayment each year. This small move will compound over the life of your loan, reduce the interest paid and allow you to pay off your principal sooner.
2. Make lump sum repayments.
If you are fortunate enough to receive an employee bonus or a tax return refund, then consider depositing these payments directly into your mortgage; what you don’t see, you won’t spend. This is an invaluable strategy, mainly if you are at the beginning of your mortgage.
If you receive a redundancy payment and don’t require this additional cash as you are receiving or are eligible for superannuation payments, consider depositing this into your mortgage.
Finally, if you receive an inheritance, you can deposit it into your mortgage.
3. Consider an offset account.
If you have cash and need to set aside cash for unbudgeted expenses, consider applying for a mortgage offset account rather than a savings account or term deposit.
The benefit of the mortgage offset account is that the interest earned on the cash is essentially offset against the interest on your mortgage. This not only helps reduce the mortgage, but the interest in the offset account is not assessable income, so it is not subject to tax, yet any interest in a bank account or term deposit will be subject to tax.
Importantly, in addition to the above benefits, you can still access these funds if required.
4. Consider refinancing.
By giving your existing mortgage a health check, you could find a better rate or even a better bank. Just because you signed on the dotted line for 20, 25, or 30 years doesn’t mean you need to stick with the same lender.
You’ll have more bargaining power if you have at least 20% equity in your home and a great credit score.
Carefully read the fine print to be aware of hidden costs, such as annual fees or ‘honeymoon’ interest rates that could change after an introductory period, application fees, valuation fees, and break fees.
Should you require further information about strategies to pay off your mortgage sooner, please feel free to contact Peter Quinn by submitting an enquiry or calling us at +61 2 9580 9166 to book an obligation-free appointment.
The information in this document does not consider your personal objectives, financial situation or needs, so you should consider its appropriateness regarding these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision, and it is recommended that you seek assistance from your financial adviser.