We first published an article similar to this one in 2017, but these rules are still very relevant today. With interest rates at an all-time low, the best thing you can do is take this opportunity to reduce your debt in a smarter way.
So here are our top rules for a smarter mortgage.
Have a strategy
Our home is often our most valuable asset, so it certainly makes sense to keep our home loan in check. Having a plan around repayment time frames and amounts, loan terms, forecasted life events and property changes means you're in a better position to make smart decisions.
Smart decisions when it comes to your home loan can potentially save thousands of dollars and years off your mortgage. The key here is to avoid 'set and forget' - regularly review your strategy and how you are tracking.
Aim to minimise interest costs.
Interest costs over a long-term mortgage can be staggering. Ways to reduce interest can depend on the flexibility of your home loan but include making repayments fortnightly instead of monthly, increasing regular loan repayments and paying lump sums. Talk to your mortgage adviser to find out ways to minimise costs without making big changes to your budget.
Aim to pay off debt faster than the bank's timeline.
The longest term mortgage is generally 30 years, which results in plenty of interest paid to the bank, and less in your pocket. As an example, switching a $250,000 loan from a 30-year term to a 25-year term could save over $69,000 in interest, based on a 7%p.a. and monthly repayments.
Use life events and end of fixed-rate periods as triggers to re-assess your mortgage. An increase in income, fewer dependents, a new home or updated interest rate can be great opportunities to work out the best mortgage structure for your situation and goals.
If you have a fixed rate loan expiring soon, while re-fixing at a lower interest rate will save you money now, consider keeping your repayments that same to reduce your debt and save on interest costs.
Talk to an expert
If you need help with putting together a good strategy to pay off your mortgage faster, please contact us. We're on your side.