OD #4 - 🏡 Pay Off Your Mortgage Sooner – Here’s How

Unlock the secrets to shaving years off your mortgage and saving thousands in interest with us. Ever wondered how small adjustments can lead to big savings in your home loan? We promise you'll discover practical, actionable tips to manage your mortgage more effectively. From switching to fortnightly payments to harnessing unexpected windfalls like bonuses to reduce your principal, we guide you through strategies that empower you to build equity faster and edge closer to financial freedom.

Throughout our enlightening discussion, we unveil advanced tactics to accelerate your mortgage payoff. Learn how to utilise an offset account to slash interest charges or leverage your equity for a positively geared investment property that generates extra income to fast-track your mortgage reduction. We stress the importance of steering clear of lifestyle inflation with an income boost, suggesting channeling those additional funds into your mortgage instead. By automating a few additional payments each year, you can significantly trim down your loan term. Plus, discover why regularly reviewing your mortgage could unlock potential savings opportunities, keeping you on track to achieving the financial freedom you desire.

DISCLAIMER:

The information in this podcast is general in nature and does not constitute personal financial advice. It does not take into account your individual objectives, financial situation, or needs. Always consider whether the information is appropriate for you and seek advice from a qualified professional before making financial decisions.

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Chapters

• 0:01 Mortgage Hacks to Save Years
• 9:05 Accelerate Mortgage Payoff Strategies

Transcript

Speaker 1: 0:01

The average Australian mortgage takes over 25 years to pay off and homeowners could spend more than 400 grand in interest alone on a $500,000 loan. But what if you could cut years, maybe even a decade, off your mortgage and save tens of thousands of dollars in interest with a few simple strategies? In this episode, we'll dive into practical hacks that can help you get out of debt faster, build equity sooner and free yourself from the weight of a 30-year loan. Whether you're just starting a home ownership journey or you have been paying your mortgage for years, these tips will transform the way you manage your loan. Welcome back to another episode of the Finance by All podcast Zeke here and your co-host, oscar. But before we get into it, please note that nothing in this podcast should ever be considered personal financial advice. Of course, if that is what you are seeking, reach out. We'll get you in touch with the correct professionals. Get the job done properly, sit back, relax and enjoy the show. Let's get into it.

Speaker 1: 1:18

Today I'm wanting to share a few different hacks and tips and tricks of how to save years off your mortgage and also, most importantly, save thousands of dollars in interest payments alone, because, as mentioned, the average Australian mortgage does take over 25 years to pay off, and myself I think that is extremely long time. Yes, that the you know your loan terms, generally 30 years, but that doesn't mean you have to pay it over 30 years. You want to be able to pay it a lot sooner so you can retire and have the option to just not pay any interest or your mortgage repayments and do what you actually want to do and not feel trapped and strangled and kind of pinned in a corner that you have to make these repayments and continue working. How can we shave years off your mortgage? Because individuals, the media, people who write articles years off your mortgage? Because individuals, the media, people who write articles. There's always people the naysayers who just continue to say it can't be done. But the truth is there are so many different ways and you just have to be adaptive as opposed to reactive, and kind of get on the front foot and get moving earlier rather than later, and then hopefully, if you take on these practical tips which I'm about to show you, you'll get ahead financially and also get closer to the life you're wanting to live. I want to share 12 tips, so not just one or two, but 12. There's so many different ones, and the good news is you don't have to use all 12. You may want to use all 12 and really get ahead, or you might want to use one or two, or at least this gives you the option.

Speaker 1: 2:44

Number one make fortnightly payments. So when you went for your loan and you started paying it off, you would have had the option of weekly, fortnightly, monthly and, pending what you've done, you may have monthly, which a lot of individuals do set up monthly because in their mind it's delayed. You've got four weeks, so you've got time to build it up if need be. But instead of making one monthly repayment, split your mortgage payment in half and pay it every two weeks. By the end of the year you have made 26 fortnightly payments, which is the equivalent of 13 full monthly payments. I will repeat that again End of the year you would have made 26 half payments, which are fortnightly payments, which is the equivalent of 13 monthly payments. So this means you are making an extra monthly repayment which goes straight to your loan principal. Just by moving it to fortnightly, you're basically making a whole extra month of repayments. So the extra payment reduces the loan balance faster, meaning that less interest is charged over time. So, for example, on a $500,000 loan at 5% interest over 30 years, if you switched that to fortnightly payments, that literally could save you over $70,000 in interest and also cut your loan term by four to five years, which is a long time in the scheme of things of such a simple hack which anyone can do right now, which you wouldn't even realize which is happening. So that simple hack of moving it to fortnightly payments can literally save you four to five years off your loan.

Speaker 1: 4:17

Number two put windfalls toward your mortgage. What that means is bonuses, tax refunds, even small inheritance you may receive. These extra income or extra money coming in can make a big dent in your mortgage if you apply them directly to the principal. So if you make, for example, let's say you get a bonus at the end of the year of five grand, if you put that $5,000 bonus toward your mortgage and let's say it's a $500,000 mortgage at 5% interest rate in the first five years you could save over $15,000 in interest and shave about six months off your loan. And if you do this, let's say, once or twice a year pending, if you get bonuses or a bit of more money coming through, this compounds and the amount which compounds over time, will save you significantly in the long term, not just money but also time. So save your interest, but also the months and the years of your actual loan term, which is so important. So when I say you, you know $5,000 bonus. It may even be you might get an extra $200 at Christmas from your grandparents, or something a lot smaller. But even if it's 50 bucks, a hundred bucks, 200 bucks, you can put it into it and that will shave time off your mortgage as well.

Speaker 1: 5:33

Number three round up your payments. So, for example, with my ING, I've got that synced to my savings and also my everyday spending accounts, so I've got Roundup. So if I spend $54.20, the remaining $0.80 to round it up to $55 will go to my savings and you can do the same to your mortgage. So Roundup your payments. This one could be a little bit more, because you're paying down your mortgage. So let's say, round it up to the nearest $50 or $100, which realistically isn't much if you've got a $500,000 loan or a million dollar loan, but it adds up over time. So let's say, for example, if your monthly mortgage repayment is $2,380, maybe round it up to $2,400, which is an extra $20 a month and that extra $20 a month over the year adds up to $240. So that's an extra $240 going to your mortgage and every dollar over the minimum payment goes directly towards reducing your principal, which is vital, because once your principal drops, your interest will drop as well, because that's obviously calculated on your principal. So something so simple like that and an extra $20 a month, it's nothing in the scheme of things. It's literally $5 a week. So pop it up an extra 50 bucks, an extra 100 bucks. Figure out what you can afford and make the move, because that will definitely help you increase it.

Speaker 1: 6:53

Number four refinance to a lower interest rate. It's so surprising how many people don't look and call up their bank to ask for a lower interest rate and they're just sitting in their ways, happy where they are, don't think that they can actually reduce or pay less. But if you don't ask, you don't get. Pick up the phone, speak to your bank, speak to your mortgage broker, get them to call on your behalf if need be. But the truth is interest rates are constantly changing. At the moment, it's almost the start of February. There's rumors that there may be a rate drop coming, so there's things always changing.

Speaker 1: 7:25

Refinancing can save you tens of thousands of dollars. For example, if you can lower your rate by just 1% on a $500,000 loan, you'll save approximately 90 grand in interest over 30 years, which is ridiculous. And even after refinancing, keep making payments at the old rate. Let's say you're currently making $2,400 a month and you refinance and then the payment comes down to $2,300. Maybe just keep doing the $2,400, because that extra amount will go straight towards your principal anyway, which will help you pay off your mortgage faster. Even though you know that you're paying or you should be paying less with your repayments, it doesn't mean you have to Maybe stick to what you were paying, because now you've got the advantage that your rate and your mortgage will go down quicker. So that's something to think about.

Speaker 1: 8:12

Number five make extra payments early. So this is better mainly for the early years of your mortgage. In the early years, most of your repayments go towards your interest, not the principal, because it's a fresh loan and you've got the maximum principal that you're paying off. So the interest will be a lot higher and making extra payments during this period can have a significant impact. So, for example, we're using numbers just to relate to everyone out there because you've all got your own mortgage. So if you pay an extra $10,000 in the first five years of a $500,000 mortgage of 5%, you could save over 30 grand just in interest. But the main thing and the most important factor is this could reduce your loan term by nearly two years, which, in the scheme of things, is pretty good. Simple numbers plan ahead can save you a long time. In the scheme of things is pretty good. Simple numbers plan ahead can save you a long time in the scheme of things.

Speaker 1: 9:05

Number six use an offset or redraw facility. So if those are not familiar with an offset, an offset account links your savings to your mortgage. So the amount in your offset, aka savings, that basically offsets your loan balance, which reduces the interest charge. So if you have a $500,000 loan and you have $20,000 in an offset account, you'll only be charged interest on $480,000. So $500,000 minus your savings of $20,000. Over time this will save you tens of thousands of dollars in interest and help pay off your loan faster. So if you don't have an offset account, maybe speak to your bank or your broker to see what can be done, because it definitely will assist and help you towards reducing your overall loan and paying it off quicker, and especially if you've got savings lying around. So if you've got savings in just a normal bank account, like you, may as well put it into your offset to actually reduce the payment going out, because it'll help you and the money will just be sitting there. So that's an important one. If you haven't got that Number seven for myself this is a big one, it should be number one but purchase an investment property, pending your financial situation, of course, and your debt to value ratio of your property.

Speaker 1: 10:15

If you have equity in your home and significant equity, you may be able to use that equity to purchase an investment property. And the reason you look at doing this is you'd leverage into an investment property personally, and ideally one which is positively geared, and pop it on interest-only repayments. And then, if you do it right and with the right team, you've got excess money coming through every week from the rent of your property and what you can literally do then is flush that extra income to your mortgage and pay off your owner-occupied debt quicker and just keep smashing it down. And then obviously as well, if you're buying in a growth suburb or a growth area, if that property goes up quite significantly over the next five, 10 years. You could always use that to sell and then literally extinguish all your debt from your owner-occupier and put all the profits into that and then you're debt-free. So that's another really good option that a lot of clients we've spoken to have done in the past, and with us as well. But if you're on the fence, it could be a good option for you. And please note, this is not financial advice. It's all general advice. If you are seeking financial advice, please reach out. We can help you and put you in the right contacts.

Speaker 1: 11:26

Number eight avoid lifestyle inflation. This is important. I see it happen a lot. So, especially when you get a bonus at work or a raise, it's so tempting to upgrade your lifestyle as well. So let's say, for example, you get an extra $60,000 a year on your income. You may think, oh, all right, this is awesome, let's go buy a car. I can afford a $60,000 car, or I'll get finance for a car. But you're not going to get ahead if you increase your expenses, if you increase your income, because you're going to be in the same position. So instead of upgrading your lifestyle, why don't you just put that extra income toward your mortgage in the early years of your life, if you are in the position to do so, and then later on, once that's getting close to paid off or paid off, then you may want to upgrade your lifestyle. But it pays to be frugal in these years, especially if you have a mortgage which isn't paying your income. If you do increase your monthly repayment by just $500 after getting a pay rise, for example, this could literally cut almost 10 years off your mortgage term on a $500,000 loan at 5%. So simple avoid your lifestyle inflation. Don't upgrade your lifestyle. I know it's tempting to do so, but if you do have a mortgage and you're trying to get it out, just commit Short-term paying for long-term gain. It's as simple as that.

Speaker 1: 12:38

Number nine plan for one or two extra payments per year. Strategically making an extra payment once or twice a year can literally supercharge your mortgage payoff strategy. We'll go to another example of the numbers. So, for example, let's say you're on the $500,000 mortgage which I've been using this whole time at 5% interest over 30 years. If you make an extra $5,000 payment once a year, this could save you over $100,000 in interest and cut your loan term by five to six years. And even smaller extra payments can help. So if you don't want to throw in five grand a year or you can't do it, even if you put $1,000 in a year, this could also save a year or even more, so you don't have to put so much. People think you can only shave off time in your mortgage if you put heaps of money, but the truth is even $1,000 can help, and over a whole year as well like it's not much at all. So that's a really important one. You just got to minimize it and really slim it down and simplify the whole process, because it's a lot easier than you think.

Speaker 1: 13:37

Number 10, automate the extra payments. So if you are looking to do the extra payments, set up automatic transfers for the payment. So this will ensure that you do stay consistent without the temptation to spend the money elsewhere, which is important. You may have a week when things don't go your way and then you want to have a bit of retail therapy and go shopping and try to make yourself feel good again by buying things that you want. But if you have the automatic transfers for these payments, you're not going to think about dipping into those funds because you know for a fact looking after itself and it's helping you shave down time off your mortgage over the years and also reduce your interest. So the automation takes the decision making out of the process. So even small, consistent contributions add up significantly over time.

Speaker 1: 14:20

Number 11, regularly review your loan. This is so important because there's so many things which change and mortgage products and rates are constantly evolving, so you need to regularly review your loan. So this may be calling up your bank or calling up your mortgage broker and having a meeting with them, but you got to regularly review it to ensure that you're not paying more than you need to. So you're not paying more than necessary For a little tip. Negotiate with your lender for better terms or look to switch to a competitive loan. Obviously, if you have a mortgage broker, they will do this for you on a regular basis if you have a good one. But if you're going directly to the bank, keep that in the back of your mind that you may need to look elsewhere, and sometimes you might want to switch and say I'm getting offered X over here, so take it or leave it like, match it or I'm off, because most of the time they'll match it if they value you and if they want you to stay. So it's worth the conversation. But you need to regularly review your loan because even a small reduction in your interest rate can literally save you thousands, depending on how much your loan amount is. And number 12, lucky last track your progress.

Speaker 1: 15:31

So use mortgage calculators or apps to visualize how extra repayments impact your loan term and your interest savings. So, for example, moneysmart has a great tools and great calculators on the website. Like I use the compound interest one a lot, there are mortgage payment calculators which you'll be able to see. You can pop in your mortgage repayments and your mortgage amount and then figure out how much you know. If you make extra payments per month or year, how much of that shave off your loan term. So play around with these calculators because there's so many. But this will basically motivate you to get you moving, because if you can see that if you put in a hundred bucks extra a month and that will save you five to 10 years, well, seeing how much closer you are to being mortgage-free, this will help you stay motivated. And putting that 100 bucks a month in every single month, no matter what and sometimes you may even put 120 bucks a month but visualizing it and looking at it and seeing what can be done. This will help you propel and get you closer to being mortgage-free. And there you have it. They're the 12 tips and tricks to really help you get rid of your mortgage as soon as possible, because it is possible.

Speaker 1: 16:41

In finishing, it's all about small changes and the power of small changes, because paying off your mortgage faster isn't just about saving money. It's about gaining the freedom and doing what you want to do and not being stressed to having to pay the mortgage and making the income to put straight into the mortgage. You may want to put that income somewhere else, like look after your family or go on a trip or go out for dinner, but whether you make small or consistent changes, even larger or strategic moves, every extra dollar you contribute takes you one step closer to that financial independence. So you must start implementing these hacks today. And if you do, watch the years literally fall off your mortgage and remember it's not just about making more money, it's about making your money work smarter for you. And trust me, you can do it. Follow these simple 12 tips or tricks and it will put you one step closer.

Speaker 1: 17:38

And, of course, if you have any questions or you wanna get in touch or you want to actually speak to a mortgage broker. We're always happy to put you in touch with mortgage brokers and professionals in the industry which we know, which we've spoken to, which we work with, and they'll be able to have a chat. They can have a confidential chat with you, even see what your current setup and your current structure is like, because there's always ways and there's always ways to improve things. So if that's you, hit us up, throw us a message. Conclusion I hope you enjoyed this episode and the 12 tips and tricks, as always.

Speaker 1: 18:12

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