A mortgage is likely one of the most substantial financial commitments you'll make in your lifetime – and with mortgage rates climbing, it's crucial to pay off your mortgage as quickly as you can to save on interest.
So, here are some effective and engaging strategies to accelerate your mortgage repayment.
Give your repayments a little boost
With the cost of living on the rise, it's not easy to find extra money to put toward your mortgage. However, if you can afford it, bumping up your repayments can be a key way to fast-track your mortgage payoff. Don't underestimate the impact of even small increases – they can make a significant difference.
That said, before making any changes, it's essential to understand the terms of your mortgage. If you're on a fixed-term rate, be aware of the limits for additional repayments to avoid early repayment fees. If you wish to pay more than the limit, it may be worth waiting until your fixed-term rate expires before increasing your repayment amount.
Make lump-sum extra payments
Don’t want to commit to higher regular payment amounts? Making lump-sum payments is another option. By contributing extra money toward your principal balance, you'll decrease the amount of interest charged over the life of your loan and shorten the time it takes to become mortgage-free.
Once again, if you have a fixed-term mortgage rate, there may be an early repayment fee associated with making extra payments, so make sure you understand the limits to avoid any penalties. If you're considering making a lump-sum payment, get in touch: we can help you determine the right course of action for your specific situation.
Paying monthly? Switch to fortnightly
If you're paid on a fortnightly basis, switching from monthly to fortnightly mortgage repayments can be an effective way to pay off your mortgage faster.
Instead of making a monthly payment, you'll split your payment in half and make it every two weeks. This works because there are 26 fortnights in a year, rather than 12 months, so you'll end up making an extra month's worth of payments each year.
However, it's important to note that if you get your repayments changed with your lender, the repayments will be calculated on 26 fortnights rather than half of your monthly repayment. Therefore, you'll need to increase your fortnightly payments to the level of half your monthly payment to make this strategy work. By making this extra payment, you'll reduce your principal balance and be able to pay off your mortgage sooner.
Maintain repayments when interest rates dip
While we can't predict when interest rates will drop again, it's worth keeping this strategy in mind for the future. When interest rates do decrease, maintaining your current repayment amount can be a smart move.
By continuing to pay the same amount even when interest rates go down, you'll be allocating more of your repayment toward the principal balance, which helps to pay off your mortgage faster. And as a result, you can save a significant amount of money in interest costs and shorten the overall term of your loan.
Consider a revolving credit facility
If you're disciplined and skilled at budgeting, using a revolving credit facility can help minimise your interest bill. This option involves setting up a portion of your home loan like an overdraft. Your income goes into the account each month, reducing the debt on which interest accrues, and you pay your bills from the same account.
However, keep in mind that this option is not for everyone, as it can be quite complicated and difficult to manage. Before making a decision, don’t hesitate to contact us and we’ll help you understand if this strategy is right for your needs.
Expert help for your mortgage journey
Like to explore your mortgage structure or have any questions? Get in touch. We’ll be happy to assist you in developing a strategy to become mortgage-free faster.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
Link Financial Group Ltd trading as Mortgage Link and Insurance Link FSP 696731 holds a licence issued by the Financial Markets Authority to provide financial advice. Please visit https://mortgagelink.co.nz/available-disclosure/ for more information and Disclosure information.
