Source: Choice Aggregation
A new financial year can be a great time to set money goals, such as paying down a home loan. Paying off a mortgage early can save on interest, free up cashflow each month and help you enjoy all the benefits of a debt-free lifestyle.
If reducing your mortgage debt is a key financial goal for FY20, here we provide some tips to kick-start your plan.
Make fortnightly payments
Instead of making one monthly payment, you can instead opt to make a half-sized payment every two weeks. Because there are 26 fortnights in the year, this strategy will result in you making an extra monthly payment every year.
Let’s look at some real-life numbers. If you had taken out a 30-year loan of $400,000 at an interest rate of 4%, making fortnightly repayments would save you around $45,000 in interest payments, shaving four years and one month off your mortgage. That’s an impressive outcome for a relatively minor change.
Increase your monthly repayment while rates are low
Another potential strategy to get the mortgage off your back sooner is to simply increase your monthly home loan payments. With interest rates at historic lows, there has never been a better time to reduce the principal on your mortgage, so make hay while the sun shines.
On a 30-year mortgage of $400,000, increasing repayments by $100 per month would cut 2 years and 7 months off the loan, resulting in an interest saving of $27,500. And don’t forget that adding any windfalls such as bonuses or an inheritance to your home loan can also take you closer to your goal.
Just check with your lender before changing your payment amount, as there may be limits on the amount of additional repayments you are allowed to make, particularly if you have a fixed rate loan.