9 ways to pay off your mortgage - fast

"We like clients to pay attention to their expenses at least once a month, otherwise they're not going anywhere with anything. It's important to have that focus" Elaine Wood, national sales and training manager, Greater Freedom

You got your loan and have bought your dream house. Now comes the hard part: paying off the mortgage. While there's no magic trick that will erase your debt in a flash, having a clear strategy on how to best service your loan could pay high dividends in the long term. Here are nine tips on how to slash thousands off your loan.

1. Be a frequent payer
Making extra repayments, where possible, will help reduce your exposure to higher interest rates and falling prices. You can choose to make weekly or fortnightly repayments. Let's say you have a mortgage of $100,000 at an interest rate of 7.82%, over 30 years. Your monthly repayment would be $721.25. If you want to make fortnightly payments
this would become $360.62. Effectively, you will be making 13 monthly payments each year instead of 12. By paying fortnightly, you will save $44,004 on interest and shave 4.5 years off the loan.

2. Extra repayments
Paying a little extra along with parking your surplus funds and whole salary into your loan until these funds are needed will help you reduce interest payments. Using the same example above, if you have a $100,000 mortgage over 30 years at 7.82% annual interest rate, just adding an extra $227.66 per month to your repayment to make it $944.07 will save you more than $87,976.30 in interest, while also reducing the life of your loan by half. You need to check if your loan will let you make extra repayments without additional costs and make sure that the loan has a redraw facility so that you can access the surplus money parked in the loan if needed.

3. Take short cuts
Paying off the loan as fast as you can is the best way to pay less interest. This often demands some degree of sacrifice as you channel any surplus funds into your mortgage. By taking a shorter loan term, you will be paying bigger monthly repayments, but you will be slashing your overall mortgage payment by the thousands. Using the same example above, your standard repayment for a $100,000 loan over 30 years is $721.25 per month. If you want to shorten the loan to 20 years, you just need to pay an extra $105.46 per month.

4. Monitor your expenses
It comes down to watching what you spend. While giving up smoking or cable TV may seem like a tall order, you will be amazed at how much you could save just by forgoing little luxuries. Greater Freedom Home Loans goes even further. "We like clients to pay attention to their expenses at least once a month, otherwise they're not going anywhere with anything," says Elaine Wood, national sales and training manager. "It's important to have that focus. The key thing we do for our clients is look at what they're spending and monitor that rather closely."

5. Consolidate your position
With today's rising interest rates, you're paying higher rates on your loans and credit cards. Refinancing or debt consolidation can be a viable option to protect you
from the risk of further rate increases. This means that all your other debts – personal or car loans and credit cards – will be under your home loan. So instead of paying 15% to 20% on your
personal loan or credit card, you can pay it off at a lower rate, somewhere in the region of 7%.

6. Target the principal first
While you'll be paying the interest during the first few years of the loan, any payment on top of the regular payment will feed into the capital.

7. Salary crediting
As a first homeowner borrowing most of the property price, the main feature you look for in a mortgage could be direct salary crediting. With discipline (or automation via online banking), you spend using a credit card and leave money set aside in the loan to repay the card bill, via a free redraw facility, before the card incurs interest. This minimises your home loan interest.

8. Plan for interest rate hikes
With the prospect of more rate hikes, it's prudent to allow for a 1.5% rise in interest rates to ensure you can afford the potential increased loan repayments.

9. Split it
You can't beat rising interest rates unless you fix your home loan rate, which itself has risks and costs. In this case, you might consider splitting your loan, say 50% fixed and 50% variable rate.


Your Mortgage Magazine 38 NO.67 NOVEMBER 2006