The secret to paying off your mortgage quicker

Aussie property prices have risen at a rapid pace over the last decade and as have our liabilities, so there has never been a better time to find out how to pay off debt quicker.

Whether it’s simply making extra payments, changing your payment frequency or offsetting accounts, here are six tips for how to pay off your mortgage faster without breaking the bank.

Set up additional repayments

The simplest way to pay off debt quicker is to make additional payments, particularly times when you have a little extra to put in the bank.

However, this isn’t for everyone – some Aussies don’t have enough spare cash available to put towards the loan, and also, some home loans don’t allow early repayments or will apply penalties.

Also read: Where will mortgage rates head next week?

Change your payment schedule

By making your payments either weekly or fortnightly, Aussie homeowners can end up paying off their loan faster and save tens of thousands of interest charges.

Finder.com.au points out that a monthly repayment of $1,000 would equate to $12,000 at the end of the year, but fortnightly or weekly payments would translate to $13,000 over the year.

By changing a payment schedule to pay more frequently, Aussies would end up making an additional payment each year, which not only helps to reduce the balance, it also reduces the amount of charges added to the account in interest and also the overall time of the loan.

Round up

The vast majority of banks will allow you to nominate the amount you want to pay with each repayment you make.

This means you don't have to pay just the minimum amount. 

Of course, if you don't want to stretch your budget too far you can simply round up the payment you make to the nearest $5 or $10.

This makes it easier to remember and it counts as making an extra payment.

Also read: What do home loans really cost?

Get an offset mortgage account

Any opportunity to reduce the amount of interest helps to pay off your mortgage faster.

If your home loan has the capacity to link a 100% offset account to it, take advantage of this.

Every dollar you leave in your offset savings account actively reduces the amount of interest you pay on your mortgage.

For example, if your mortgage is $300,000 and you have $10,000 in your offset account you'll only pay interest on $290,000.

The vast majority of mortgages have their repayments calculated to include a portion that covers the interest component and a portion that comes straight off your balance.

If you can reduce the amount of interest you pay, this automatically means each payment you make pays more off your balance.

Redraw

Another popular modern home loan feature is redraw, where you can withdraw money from your home loan if you have made additional repayments.

This gives the freedom to make additional repayments, without having to worry about losing access to those funds in an emergency.

Lenders are able to offer this service by charging a slightly higher interest rate on a mortgage containing such features, to cover higher loan maintenance costs and the possibility of lost income for the lender.

However, borrowers are more than willing to pay a slightly higher interest rate, in return for being able to pay off their mortgage earlier and save themselves money.

Also read: First home buyers have become collateral damage

Look for a better rate

Any Aussies who are paying more than 4.00% on your mortgage, it’s probably time to take a look at what other lenders have on offer.

Some of the more competitive lenders on the market can shave 0.25% off that figure.

Sometimes, lenders will also do a deal with you, especially if you are willing to take on other products with them (or already have other products).