Time is money, as they say, and paying off your mortgage is no exception – the faster you can do it, the better.
With interest rates sitting low and unlikely to be moving in the near future, now is the time to strike on your mortgage, Canstar commentator Justine Davies says.
“When rates are low, a larger proportion of the extra money you put onto the loan is going towards paying off the principal, as opposed to just paying more interest,” Ms Davies says.
“When interest rates are low you should absolutely hit your home loan as hard as you can – you can knock years off the length of the loan.”
Michelle Hutchison from comparison website finder.com.au said borrowers saving money on their repayments courtesy of low interest rates should be pouring that extra cash directly onto the loan or into a 100 per cent offset account. You can do either, it’ll have the same impact.
For home owners, Ms Davies recommends putting the money directly onto the loan, removing the temptation to withdraw the money and spend it elsewhere.
But for investors, keeping that extra cash in an offset account is beneficial for tax purposes.
Here are some tips for paying your mortgage faster:
* Get a 100 per cent offset account.
An offset account is a transaction account linked to your loan.
Any money in that account is then offset daily against the balance of your loan, reducing the amount of interest you pay.
For example, if you have a $300,000 loan with $20,000 in your offset account, you’d only be charged interest on $280,000.
Anyone with a mortgage is financially better off putting extra savings into an offset account rather than a high interest savings account or term deposit, Ms Hutchison says.
Returns on savings accounts are low at the moment and unlike an offset account, you’ll pay tax on the interest you earn.
* Find a cheaper rate.
The average variable rate at the moment is 5.44 per cent while the lowest is 4.54 per cent, Ms Davies says.
“On a $400,000 home loan, which is the typical amount first-home buyers borrow, the difference equates to about $200 per month in repayments,” she said.
“If you continued your repayments at the same level, you could pay your home loan off years sooner.”
* Don’t underestimate how much difference an extra repayment can make, no matter how small, Ms Davies says.
If you added just $20 a month to your repayments on a $300,000 loan at an interest rate of 5.44 per cent (the current average), you’d save more than $10,000. AAP