With the beginning of a new financial year, it’s an opportune time to review your finances, including debt, budgeting, and your mortgage.
Here are seven quick things you can do to reduce the life of your mortgage.
Up your repayments
The key to this tip is to do what you can. Try increasing your repayments by 5% to start with, and, if possible, continue to increase in 5% increments up to what your income v expenses will allow.
Change the frequency of your repayments
You probably already know this one, but by simply changing your repayments from monthly to fortnightly will get you an extra month’s repayment into your home loan each year and cut your mortgage by a number of years.
Link an offset account or use the redraw facility
Most mortgages have a redraw facility built in (your loan type will play a determining factor here) so use this to deposit any extra savings. This reduces the balance of your mortgage and hence the interest payable, which simply means you are paying more off the principal each month. Redraw facilities can have certain restrictions like minimum withdrawal limits or extra fees (always worth checking the T&Cs).
Alternatively, some mortgages allow you to link a transactional account as an offset account. This works similarly to a redraw facility but is more convenient and allows easier access to the money.
Review your rate
Call your finance broker and have a quick chat to them about your current rate – perhaps there’s a better deal out there. If you don't ask, you won't get.
Deposit any extra lump sums of money
While it’s tempting to spend, as you receive those extra income sources throughout the year, such as a bonus or inheritance, making a habit of depositing it directly into your mortgage is an easy way to reduce your balance, quickly.
Make an extra repayment every three to six months
Build into your budget a plan to make an additional repayment at least a couple of times per year. If your loan repayments are $1,800 per month, this equates to just $75 extra per week, but it can save years and thousands of dollars’ worth of interest.
Review your mortgage every year
If you haven't looked at your mortgage for over a year, contact a finance broker and have them conduct a review of not only your mortgage but of your individual circumstances.