HOW TO REDUCE
YOUR MORTGAGE
FASTER
Author: Don Crellin, General Manager, Resolve Finance.
Regardless of whether your home loan is for your own place of residence or an
investment property, all homeowners have one thing in common – the desire to
pay the home loan off as soon as possible to be debt free. Luckily there are a few easy
steps to follow which will help you to pay your loan off faster and potentially save
you thousands of dollars in the process.
Always pay Principal and Interest
Firstly, it is important to understand how your home loan
works. Your minimum monthly loan repayment is calculated
on how much per month is needed to pay off the balance
of the loan or principal over the term of the loan, plus the
interest that has been accrued on that balance. This is called
‘Principal and Interest’ and should be the minimum you pay
off your loan for your place of residence each month. If you
have an ‘Interest Only’ loan you are only repaying the interest
component and will never repay your loan so you should
definitely avoid this option if you want to get ahead.
Financial Security Through Property
However, if you are paying off your own home, plus an
investment property, you may find that paying Principal and
Interest (P&I) is not the best solution for you because you may
get some tax benefits on your investment property but not on
your own home. Therefore, it may make sense to pay off your
home as quickly as possible while maintaining the tax benefits
on your investment property.
You can do this by paying P&I on your home loan and interest
only on your investment property. It is important to speak
to your financial consultant or broker to understand which
scenario is best suited to you.
Resolve Finance Australian Credit License No. 385487
For more information on financial security through property: visit: investorassist.com.au email: [email protected] or call 08 9200 7200.
HOW TO REDUCE YOUR
MORTGAGE FASTER
Reduce your loan term but give
yourself flexibility
Normal loan terms are generally around 25 years but they can
be as short or long as you want. Obviously the quicker you
pay it off, the less interest you pay, so you are recommended
to always pay off as much as you can afford to, as quickly as
you can. However, even if you think you can pay your loan
off quicker than the standard 25 year term, it is always a good
idea to take out a loan for the full term to give yourself as
much flexibility as possible.
The following table shows how much you can save on a
$350,000 loan at an interest rate of 6.5% by paying it off over
a reduced term:
Loan Term
25 years
20 years
15 years
Total Interest Payable
$358,967.52
$276,281.43
$198,797.64
Savings
$82,686.09
$160,169.88
reduce your mortgage but is important to make sure there are
no fees associated with your redraw facility in the event you
do wish to redraw some of the additional funds.
Use an offset account
In addition, you may also wish to speak to your lender about
establishing an offset account. This account can be used as
your general ‘day to day’ account but any surplus funds sitting
in this account are used to offset your home loan and will be
deducted from the balance of your home loan, thus reducing
the amount you owe. Offset accounts can be used for a wide
range of things including multiple incomes or even as a
holding account for GST if you are self-employed!
Sure, the balance of this offset account will fluctuate but even
if there is only a small amount in there, every little bit helps
and you will be surprised how these little things can really
add up over the life of a 25 year loan!
Use your online resources
Make repayments weekly or fortnightly,
rather than monthly
What some people don’t realise, if that you can actually save
yourself interest over the life of your loan by paying your
repayments weekly or fortnightly, rather than monthly, as the
interest is calculated on the reduced total so you are better off
to reducing it as often as possible!
Make a lump sum payment to reduce your loan
If possible, you are also recommended to make one-off lump sum
payments whenever you can to reduce your mortgage and the
total from which your interest is calculated. Even if you have to
redraw some of this lump sum payment down the track for other
commitments, it has provided you with a short term benefit by
reducing your loan and the amount of interest you will repay.
Make sure you have a redraw facility
It is also a good idea to have a redraw facility which allows you
to apply extra repayments to your loan, reducing the balance,
which remains accessible for withdrawal if required. This will
Finally, play around with the various online resources
available to you to find out how these tips and suggestions can
save you money. The quickest and easiest way to test different
repayment scenarios is to jump on the Resolve Finance
website and check out the different calculators which will
show you how you can pay off your mortgage faster. The
calculators will show you how much time and interest you will
save if you pay Principal and Interest; how much you will save
if you decide to pay a lump sum off your home loan at any
given time; how much quicker you can pay off your mortgage
if you choose to make extra repayments on a regular basis;
or how different interest rates over different time frames can
affect how much you repay.
There are many options to consider to reduce your mortgage
repayments and a qualified mortgage broker, such as Resolve
Finance, can help you find a solution.
Visit www.resolvefinance.com.au today to discover
how you can reduce your mortgage faster.
Resolve are an award winning brokerage with over 14 years’ experience in helping property investors set up and secure the right loan
for their situation. As number 9 in The Advisor magazines Top 25 Brokerages, they know precisely what’s needed and when, and can
coordinate it all for you. For more information on this topic please visit Resolve Finance at www.resolvefinance.com.au.
DISCLAIMER: This information is of a general nature only and does not constitute professional advice.
We strongly recommend that you seek your own professional advice in relation to your particular circumstances.
Financial Security Through Property
Resolve Finance Australian Credit License No. 385487
For more information on financial security through property: visit: investorassist.com.au email: [email protected] or call 08 9200 7200.