Great news for borrowers is that mortgage interest rates currently remain low.
Craig Pope, mortgage adviser at Pope & Co. Mortgages says now is a really good time to make the most of this low interest rate environment and try to pay your mortgage off quicker. “We get clients who sweat over tiny basis point differences in what one bank is offering to another, when the bigger focus should be on the structure,” says Craig.
“If you are coming off a higher interest rate, try and keep your repayments at the same level, or even increase the amount if you can afford to. This way you will end up paying off more mortgage principal, and become debt free quicker,” says Craig Pope.
Alternatively, you could have a portion of your mortgage on a floating interest rate. This will allow you to pay extra on your mortgage as your cash flow surplus allows. However, it helps having a plan and you need to be disciplined to ensure you manage this structure well.
Consider shortening your loan term. There isn’t a big difference in repayments between a 25- and 30-year term, so why not start with a 25-year term if you can! Some banks even allow setting the loan payments above the minimum which is another way of effectively shortening the term.
You may have heard that to pay your mortgage off faster you should pay weekly or fortnightly. This is true but you need to be more specific to get the most out of it. So here is how you can make it work to your advantage: Let’s say you have a loan of $200,000 at 6% interest, on a 25-year term and the fortnightly payment is $595. If you were paying monthly, the repayments on $200,000 at 6% over a 25-year term are $1,288. The trick is to take the monthly payment, i.e. $1,288, and divide by 2 which equals $644. Then use the figure of $644 (or round to $650!) as your fortnightly amount. So if paying $644 a fortnight, that’s an extra $107 a month, or $49 a fortnight. That shortens the term by about 4 years and saves over $33,000 in interest (assuming the interest rate didn’t change). If that’s the difference an extra $49 a fortnight can make, imagine what an extra $100, $150 etc. a fortnight (or more) can do!
If you haven’t already done so, now is also a good time to do a personal budget to get a good understanding of your current money situation. Pope & Co. Mortgages have some great simple tools to help you with budgeting. Once you have a good grasp on your budget, this in turn can help you become debt free quicker. Check out our website or email Pope & Co. for some handy budgeting and loan calculators.