Smart mortgage management

Don’t rely on a lotto win or Great Aunt Agatha popping her clogs. Here are some tips to making you mortgage-free sooner rather than later.

1One of the biggest questions I get asked by people is “how do I pay my home loan off sooner?”

It is a very simple question which opens the doors to some very complex answers if we want it to. No doubt many of you would have seen or heard of a lot of schemes where we are being promised we can pay off our home loan in a couple of years. Well. . .

Let’s have a look of some of the real options you can actually use to pay your home loan off and not worry about the snake-oil salesmen promising the unobtainable.

Very simply, money costs money and your aim should be to borrow money for your home loan at the best possible rate. Many Australians don’t bother looking at their home loan interest rate and are happy to go with their current lender without even questioning it.

By reviewing your home loan you might be amazed by how much you could actually save by swapping to a bank with a cheaper rate.

At the very least you should be calling your bank to see if they will offer you a better rate than what you are on. These savings can be substantial from a weekly point of view but the real value is when you add them up over time. You could be looking at savings in the thousands.

Offset accounts are a very popular way of saving money on your home loan.

They work by money in your account being offset daily against your loan balance, and this will reduce the mortgage interest charged accordingly.

So you might have a $300,000 loan and $25,000 in your offset account. Because of your offset account, you will only be charged interest against $275,000. By having a decent amount of money in your offset account, you can effectively cut years and thousands of dollars from your home loan.

They also work just as well if you have your salary deposited into a standard savings account every payday, so you don’t need a huge amount. When choosing an offset transaction account, look for a no-balance limit, so you can keep building your savings and cutting down on your home loan term as well as an account where 100 percent of your total balance is offset on the loan. Offset accounts can also give you the benefit of fee-free banking in some cases.

Make sure you speak to your mortgage broker who will give you some great options in this area.

This might seem the most simple thing you can do, but pay more than you have to on your regular repayment. Even if it is only $10 extra a week, every extra dollar you put into your loan will save you interest and in turn make it quicker to pay your loan off.

This is especially relevant when interest rates are low. Not only will this help you to pay your loan off quicker it will also give you available funds in redraw if you really need to access them down the track – and here I stress really need the funds. Don’t use your home loan as a credit card or you will find you will take the full term to pay it off which is not something you ever want to do.

Most of these ideas are very simple to put into place and once you have done them, they can save you thousands of dollars and years off your loan.

We can’t rely on winning lotto or getting a large inheritance to pay our loans off, but if you put your mind to it you can be mortgage-free sooner than you know it.

About peardrealestate

Peard Real Estate is an award winning network of boutique offices throughout Western Australia delivering innovative property solutions, services and results for home owners, landlords and investors.
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