How to Pay Off Your Mortgage Quickly and Retire Early
Many of us work hard to pay off our mortgages, hoping to retire early and be debt-free. However, the pressure to repay a mortgage can be overwhelming, especially when you consider the amount of interest that needs to be paid in addition to the principal. Since 1990, the average standard variable mortgage rate in Australia has been five percent. If you have a $500,000 loan, you will end up repaying $466,000 over 30 years, almost equivalent to giving the house to the bank for free. With high inflation and interest rates at 6.3 percent, the same mortgage over 30 years means paying a shocking $615,000 in interest.
Many people ask their banks for advice on how to repay their mortgage, but the banks are not able to provide the answers due to several reasons. Bank staff can’t provide financial advice, they might not have the necessary knowledge, and the advice you need may conflict with the bank’s interests. As a result, people often choose an option without fully understanding the various loan products and arrangements.
If you want to outsmart the banks, reduce taxes, increase investment returns, and pay off your mortgage early, this video will provide you with nine ways to achieve that. This information will save you a lot of money in the long run.
Refinancing is one of the most important ways to help you pay off your mortgage more quickly. By switching banks, you can take advantage of lower interest rates and better loan terms that new customers often receive. Banks are eager to attract new customers and are willing to offer better deals to entice them. Unfortunately, loyalty to a bank as a long-term customer often leads to higher interest rates and stricter terms. Refinancing allows you to access better loan products and potentially save a significant amount of money.
2. Use a 100% Offset Account
If you have the option, open a 100% offset account when applying for a loan. This account helps reduce the interest you need to pay on your mortgage. When you deposit money into the offset account, it reduces the interest base on your loan. Each repayment is deducted directly from the offset account, ensuring you never forget to pay your mortgage.
3. Accelerate Your Salary to Your Offset Account
If your salary is your main source of income, it’s essential to have it paid directly into your offset account. By depositing your salary, including bonuses and commissions, into the offset account, you can reduce the interest you need to pay on your mortgage. This approach ensures that your income enters the offset account sooner and stays there longer, saving you money in the long run.
4. Use Credit Cards Wisely
Your mortgage package might come with a credit card, and it’s important to use it wisely. Many people believe that credit cards encourage overspending and try to cancel them to save on annual fees. However, credit cards can be beneficial if used responsibly. They can provide additional benefits and rewards that can help offset some of the costs associated with your mortgage.
5 Ways to Pay Off Your Mortgage Earlier
The Benefits of Using a Credit Card Wisely
While credit cards can often lead to financial problems, if used wisely, they can actually help you pay off your mortgage earlier. Credit cards offer an interest-free period, ranging from 45 days to 2 months. By using your credit card for everyday expenses like utilities and groceries, you can avoid paying any interest for up to two months. This allows you to keep your money in an offset account, reducing your mortgage interest. When it’s time to repay the credit card, you can use the money from the offset account. Additionally, some credit cards offer perks like rewards points and free travel insurance, making them even more beneficial.
The Difference Between Lazy Money and Diligent Money
Money can be categorized as either lazy money or diligent money. Lazy money refers to money that sits idle in a bank account, earning little to no interest. On the other hand, diligent money is money that is actively working to earn more. If the money in your offset account is offsetting an interest rate lower than what you could earn through other investments, it’s better to keep it in the offset account. However, investing in real estate can provide higher returns, allowing you to pay off your mortgage faster.
Paying a Little More Each Month
One simple trick to pay off your mortgage earlier is to pay a little bit more each month. By adding just $100 or $1000 to your monthly payment, you can shave years off your mortgage term. Making a substantial extra payment all at once, such as with a year-end bonus, can also significantly reduce your mortgage term.
Choosing the Right Repayment Frequency
The frequency of your repayments can make a big difference in how quickly you pay off your mortgage. Instead of defaulting to monthly payments, consider paying fortnightly or weekly. This can result in an extra month’s payment each year, helping you become mortgage-free sooner. Additionally, more frequent repayments can also cut down your interest costs.
Taking Advantage of Tax Deductions
If you’ve recently bought a new property or completed renovations, you may be eligible for tax deductions. Claiming depreciation on your property can reduce your taxable income, resulting in savings that can be put towards your mortgage. Additionally, interest on an investment property mortgage is tax deductible, so it’s important to weigh the benefits of paying off your primary residence versus investing in property.
The Importance of a Great Mortgage Broker
Finding a great mortgage broker can be the best way to pay off your mortgage earlier. A skilled broker will take into account your unique situation and help you find the most efficient strategies for paying off your mortgage. They can provide insights and advice tailored to your specific needs, making the process much easier.