The major expense that you’re going to have on your property is going to be your mortgage. Wouldn’t it be great if you could pay it off faster and if you no longer had that mortgage to pay?
If that was an investment property that means you automatically get a massive influx of cash flow because you don’t have that mortgage to pay for and if that’s your own home then again you’ve got a massive influx of cash flow because your expenses have now dropped dramatically.
When all of your friends are renting in the area imagine owning a home without a mortgage and so all you are paying is council rates and insurances and so forth. You it would be living the dream. So how can we pay off our home faster?
1. Make Extra Repayments
Tip number one is to make extra repayments. If you have mortgage and you make extra repayments over what you expected to pay then your home loan is going to be paid of faster. What would generally happen is you would generally sign up and you would get a mortgage for maybe 25 years and the bank will set the amount you need to pay each month so that over time you’ll pay off the mortgage in 25 years.
If you go above or beyond that maybe, maybe you’ll be getting influx of cash from a commission or a bonus, or your pay goes up and you decide to put a percentage of that pay increase on the mortgage then what’s going to happen is you’re going to drop the amount of interest you’ll be paying. And if you do it early then it’s going to show off and make it so much faster to pay it off.
Just by adding a little bit each and every month you can pay off your home loan years in advance. So it’s definitely something to think about if you can’t scrape together any extra money to pay off your mortgage faster.
2. Choose Fortnightly Repayments Over Monthly Repayments
One way of doing this which I’m going to use as tip number two is to chose your fortnightly repayments over monthly repayments. Let’s say you have a monthly repayment change it to fortnightly and half your monthly repayment. So if you’re paying $2,000 a month half it to $1,000 but pay that every single fortnight.
The reason is because most people assume that there is four weeks in a month but is actually little bit more than four weeks in a month except for February. So by saying that we have 12 months of the year and there’s only 4 weeks in each month than 4×12=48. But if we say that there is actually 52 weeks well then there’s extra 4 weeks there in the year or 2 fortnights.
So if you cut your monthly repayment in half and pay fortnightly over the course of the year you’re going to make extra repayments. Obviously you need to find that money from somewhere but that is a technique that many people use.
3. Consider Using An Offset Account
Tip number 3 is to consider using an offset account. So an offset is an account that offsets the interest that you have to pay. So in most cases this means that if you have $10,000 in an offset account that’s $10,000 you don’t have to pay interest on.
A lot of people are using an offset account and they’ll get their work income paid into this offset account or maybe other income paid into it as well. And so while you have it and while sitting there before you spend it it’s offsetting your mortgage- therefore you’re paying less interest, therefore you’re paying off the principal faster even though your payments stay the same.
By using an offset account and using it wisely you can lower the interest that you’re paying and you can therefore pay off your home loan faster.
4. Move Your Money Around The Smart Way
Tip number 4 is to move your money around the smart way. Recently I did an interview with Don from Mortgage Choice. He mentioned that some investors opt for having the offset account on their home loan but not necessarily using offset accounts on their investment property.
So what these investors would do is they would take money and rental income from their investment property and put it in the offset account that offsets their home loan. What this means is that they’re maximizing the tax deductions on the interest they’re paying on the investment property and instead they’re offsetting that money at the home loan.
So they are paying off the non-tax deductible home faster and maximizing a tax deductions on their investment property. By moving money around in a smart way you can maximize tax deductions, you can maximize your offsets and pay off your loans that much faster.
Please, please, please speak to a professional about this; speak to a tax accountant about this. Your accountant can help you work out what’s best for you. This is not financial advice just general education stuff, that’s my disclaimer.
5. Consider Refinancing
Tip number 5 is to consider refinancing every so often. Depending on how the market goes and depending on the changes lenders make you might not be getting the best home loan for yourself and nowadays getting out a home loan isn’t as expensive as it used to be.
So by going and seeing your mortgage broker, looking at refinancing you may be able to get yourself into a better home loan where your payments are less. If you choose to then pay the same amount regardless you can actually lower the amount of time it takes you to pay off your home loan.
If you want some brokers that I’ve interviewed I recommend to head over to PositiveCashflow.Astralia.com.au/brokers. I’ve got a list of brokers that you can check out there. By refinancing, making sure you always have the best loan for you, you can make sure that your repayments are lower so you can pay it off faster.
6. Get Rental Income
Tip number but 6 is to get rental income. So this could be from your own home or this could be from an investment property (look at ways of increasing your rental income).
For many people, especially in the New South Wales where they have made it easier to get granny flats approved, people are building granny flats on their homes on investment properties to get rental income or to get more rental income.
They are then using this extra income to pay off their mortgage faster. And so this is something that you could consider.
If you have an investment property you could also look for ways to increase the rental income, maybe by doing renovation, maybe by adding a granny flat, there’s many different ways that you can increase your rental income and get more rental income to help pay off your property faster. So always look smarter ways to do that.
7. Choose Your Loan Wisely
And tip number 7 is to choose your loan wisely and I always recommend that people go and see a mortgage broker to help them do this because there’s over 30 lenders out there who are probably willing to lend you money and for every person the lender that’s best for them is going to be different.
So by going to a mortgage broker you get access to all of those lenders but you get to say which one works best for you rather than just walking into your bank and choosing the loan that they have. By going to a mortgage broker you can get access to many loans and you can choose the loan that’s best for you.
Maybe that’s best in terms of borrowing capacity, maybe it’s best in terms of fees, maybe it’s best in terms of the interest rate. Whatever it might be your mortgage broker can help you with that. So go ahead get the best loan for you so that you can afford to pay off more of your principal faster and get rid of that loan faster.