A mortgage will probably be the biggest amount of debt hanging over your head during your lifetime.
Therefore, a mortgage is the main thing that could cause personal bankruptcy. I’d want to pay off my mortgage as quickly as possible.
So here are three ways to pay it down faster:
Change the payment frequency
Unless you account for every dollar in a budget, you may have a bit of wriggle room to change how payments are made.
Many people pay their mortgages once a month, but if you split that amount in half and pay it once a fortnight you’ll end up paying more over a year. That’s because there are 26 fortnights in a year but 24 half-month periods, so you can pay the mortgage off a bit quicker without really noticing.
That might not sound like a lot but it would make a big difference over the whole life of the loan.
Make use of an offset account
Another way to pay off the mortgage quicker is to use an offset account. If you have a $500,000 loan but $25,000 in an offset account then you only pay interest on the $475,000 balance.
You may think that would decrease the mortgage repayment, but it doesn’t. If you pay $2,000 a month it would stay at $2,000 a month, it’s just the interest portion of the payment that reduces and therefore the capital repayment portion increases.
This would mean that the loan is being paid off quicker than expected but with no change to your cashflow.
Make additional payments
The most obvious way to pay down your loan faster is to simply make one-off payments towards it. Just check that you won’t be penalised for paying your loan quicker than your bank like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) allows (without charging you fees).
Any amount put towards your paying your loan down faster is a good move if there’s no negative to doing it.
I don’t have a mortgage yet but I definitely plan to make use of an offset as much as possible. I want my net worth to have as little liabilities as much as possible and as high assets as possible.
The post Here are 3 ways to pay off your mortgage quicker appeared first on Motley Fool Australia.
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