How To Pay Off Your Mortgage Faster

For many Kiwis, a mortgage is going to be their biggest financial commitment ever!
So, you want to make sure you are handling it wisely.
While interest rates have come down significantly in the last year, they are still higher than in the glory days post-COVID. So, you may be looking for ways to reduce your debt quickly and potentially save yourself thousands in the process.
The good news is, there are some practical steps you can take to pay your mortgage off faster.
As experienced mortgage advisors, we have some quick tips for you here and can guide you further with more information about your individual circumstances. Let’s get started!
Why Paying Your Mortgage Off Faster Is Worth It
Reducing the debt you have is always great for your finances, and every year you can shave off the term of your mortgage is money back in your pocket. Paying your mortgage off faster doesn’t just mean saving thousands of dollars in interest, it also means financial freedom.
Without a mortgage tying you down, you will have more disposable income for the things you want to do. You could be spending more time with family, travelling, investing, or simply enjoying life without the pressure of a big monthly repayment!
Paying your mortgage off sooner is about creating security for your family and building wealth for the future. So, let’s look at some of the ways you can do this.
10 Ways To Pay Your Mortgage Off Sooner
1: Make Extra Repayments
Most mortgage structures have the facility to make extra repayments without penalty. Even small additional payments can create big savings over time. For example, paying an extra $100 a month off a $500,000 mortgage fixed at 4.95% could trim 2.5 years off the term of your mortgage and save you almost $42,000 in interest!
2: Choose Fortnightly Payments
By switching your repayments to a fortnightly frequency, you will actually end up making 13 monthly payments in a year, as opposed to 12. Without much extra effort, this will help you reduce your principal faster and save on interest.
3: Settlement Payment
When you purchase a new home, there will be a grace period until your first mortgage repayment is due. Instead of waiting for that date, make your first payment upon settlement. You will immediately reduce your principal and start saving interest right from the very start!
4: Maintain Repayments
Over the term of your mortgage, interest rates will move. If they happen to trend downwards, don’t reduce your repayments, just keep paying the original amount. Any extra you pay will go straight off your principal which will reduce the amount you owe and shave time off the end date of your loan.
5: Utilise Lump Sums
If you happen to receive a lump sum of money, you can put some or all of it toward your mortgage. Bonuses, tax refunds, or gifts are all prime opportunities to reduce your mortgage faster. Even a one-off payment can significantly lower the amount of interest you have to pay over time.
6: Round Up Payments
Often, minimum payments are messy figures of money with weird dollar and cents amounts. Rounding them up to the nearest hundred can be a small step that can gain you big momentum in the long term. You may also choose to focus on paying a segment of your mortgage off each year, such as setting a goal for $20,000 off the principal.
7: Pay The Fees Upfront
With some loans, there are establishment and admin fees. Instead of adding these fees to your loan principal, negotiate to pay them up front. This will prevent you from having to pay extra interest costs over the term of your loan.
8: Resist Lifestyle Creep
If you are lucky enough to receive a pay rise or grow your income, it is tempting to upgrade your lifestyle. If you can channel at least some of the extra cash into your mortgage, you will be better off in the long run. Even small increases in your regular repayments can make a huge impact.
9: Knock Out High-Interest Debt
Credit cards, vehicle finance or personal loans all tend to come with a high interest rate. Tackling these debts before your mortgage will reduce the pressure on your finances. When they are eliminated, you can then change your focus to paying off your mortgage.
10: Consider Your Loan Structure
Over time your situation will evolve. What suited you at the beginning of your mortgage may no longer be the best option for you. Take the time to review your mortgage structure with a trusted mortgage advisor to ensure it is still working for you.
There may be opportunities to change your structure to benefit you:
- Fixing different portions of your loan can reduce your risk of interest rate blowouts
- Switching banks may give you a better deal for your particular situation
- Splitting your loan can give you greater flexibility; for example, you can funnel extra payments into a floating portion without penalty.
- Linking your savings to your mortgage via an Offset loan means you only get charged interest on the difference. This can potentially cut your interest to zero on the offset portion.
Bonus Tip: A Mortgage Advisor Is Your Secret Weapon
Making smarter decisions about your mortgage is easier when you have professional support. A mortgage advisor can compare options across all lenders to get you the best deal. They can also guide you through refinancing to ensure you understand the fees, any penalties and the true long-term benefits.
More importantly, a mortgage advisor can help you avoid costly mistakes, negotiate better deals, and align your mortgage strategy with your overall financial goals.
At Mortgage Suite, we are all about creating the right repayment plan for you, so contact us now to start your journey to interest savings and financial freedom!