Paying off a mortgage early is a financial priority for many homeowners, from first-time buyers to those approaching retirement. Let’s explore several strategies to help reduce mortgage debt. This article includes some illustrative examples to demonstrate these strategies in action.
Optimise Extra Repayments
Extra repayments can significantly shorten your mortgage term and reduce the interest you pay. This could involve setting up a higher ongoing repayment or making ad-hoc additional payments.
Illustrative Example: The New Homeowners
Consider a young couple, Sarah and Adam, who have just entered the property market with a 30-year loan. By paying an additional AUD$250 per month on their AUD$500,000 mortgage with an interest rate in the 6’s, they could reduce their mortgage term by several years and save tens of thousands in interest.
Seek Out Refinancing Opportunities
Refinancing your mortgage can secure a lower interest rate and often somewhat more importantly – a more appropriate structure to suit your current goals. A lower interest rate allows more of your payment to go towards the principal rather than interest, and improving your structure allows you to meet multiple goals at once.
Illustrative Example: The Mid-Career Professionals
Meet Mya and Zane, who have been paying off their mortgage for 10 years. By refinancing their remaining AUD$400,000 loan to a new 20-year loan at a lower rate, they could potentially save AUD$200 per month and reduce the total interest paid over the life of the loan. They were also able to improve their structure to include an additional loan split allowing them access to available equity to use as a deposit when they spot the right investment property.
Apply Lump Sum Windfalls
Using unexpected windfalls like tax returns, bonuses, or inheritances can make a large dent in your mortgage balance.
Illustrative Example: The Established Family
An established family, the Nguyen’s, receive an AUD$20,000 inheritance. Instead of spending it on a luxury holiday, they decide to apply it to their AUD$350,000 mortgage balance. This could potentially cut a couple of years off their loan term and reduce their interest significantly. They understood the importance of lowering the balance of their mortgage in order to accrue less interest costs.
Leverage Offset Accounts
Offset accounts can help homeowners save on interest, as the money in these accounts offsets the balance on which interest is calculated.
Illustrative Example: The Financial Strategists
Imagine Lara and David, who consistently maintain AUD$30,000 in their offset account against an AUD$500,000 mortgage. This could equate to thousands saved in interest over the life of the loan, acting similarly to making additional repayments.
Downsize Your Home
Selling a larger home and moving to a smaller property can release equity to help pay off your mortgage sooner.
Illustrative Example: The Downsizing Retirees
George and Maria decide to downsize from their family home to a more manageable 2-bedroom apartment. With the equity released from the sale, they could pay off their existing small mortgage and purchase the apartment outright, freeing them from mortgage payments during retirement.
Your Partner in Mortgage Management
At Well Money, we’re committed to providing bespoke strategies that align with your individual financial circumstances. Whether you’re looking to increase your repayments, refinance, or downsize, our team offers the expertise and personalised advice to help you navigate your mortgage journey.
Invitation for Personalised Advice
We encourage you to reach out to our Australian-based home loan experts for a detailed discussion on how these strategies can be applied to your situation. Let’s work together to achieve your financial goals and move you closer to a mortgage-free life.
