Buying a home is a massive milestone for most people, but it often comes with the financial responsibility of a mortgage. These loans can seem daunting at the beginning, but by doing everything you can to pay them off, you’ll feel more and more in control. Plus, we’re here to help! We’ve put together a list of the smartest ways to save money – so you can put it back into your mortgage and pay it off quicker. By the end of this article, that loan will seem way more manageable. So, let’s get started.
Prioritise repayments
As we all know, the more payments you make towards your mortgage, the quicker you’ll be able to pay off your loan. But the catch with loans is that a large portion of what you’re paying back is interest. So, your goal is to pay back as much of the debt as you can, as quickly as you can, reducing the amount of interest you’re paying – because by paying off your debt quicker, it will have less time to rack up interest. Here are some smart ways of doing just that –
First off, if you can, pay more than the minimum required amount each month. This will mean you can significantly reduce the total interest paid over the loan’s lifespan and shorten the repayment period. Don’t have a ton of extra money at the end of a month? Even small additional payments can have a substantial long-term impact on your loan, potentially saving you thousands of dollars in interest in the long run.
Put unexpected cash into your mortgage. Whether it’s a tax refund, money as a gift, a work bonus, an inheritance, or any other unexpected windfall, by allocating those funds towards your loan, you’ll lower your interest considerably.
Just remember to check what your lender’s policies are on extra repayments, particularly if you have a fixed-rate home loan. While variable-rate loans typically have no restrictions on how many additional repayments you can make, fixed-rate loans can have limitations, including prescribed thresholds, or the total amount that you can put in over a period of time.
Open an Offset Account
Offset accounts are a simple and effective way to cut down on the interest you pay on your mortgage. It’s simple – they work like regular savings accounts, except they’re linked directly to your home loan. This means that the money you save into this account directly reduces your loan balance, which brings down the interest you pay on your mortgage. Here’s how it works:
If, for example, you owe $600,000 on your home loan, and you have $20,000 in your offset account, you’ll only pay interest on $580,000. This means you’re freeing up extra money that you can then use to make additional repayments on your loan, meaning you’ll be able to pay it off quicker.
Set Up Automatic Payments
Setting up automatic payments for your mortgage has many benefits. For starters, it will mean that the amount of money will be automatically allocated to your salary, so you don’t have to worry about getting tempted to spend it on something else. But another, and less known fact, is that because automatic payments help you avoid late fees, you may be able to lower your interest rate. You’ll probably have seen that many lenders offer discounts or incentives to people who open automatic repayment options. This is because they favour mortgage payments that are made on time each month. And by doing that, you can actually improve your credit score, which means you could potentially qualify for better mortgage terms in the future.
Consider Biweekly Payments
Another effective strategy for saving on your mortgage is to switch to a biweekly payment schedule. Instead of making one monthly payment, you make half of your monthly payment every two weeks. The result is that you end up paying 26 half-payments per year, which is equivalent to 13 full payments – instead of 12. So, by paying fortnightly, you end up making an extra month’s repayment each year. Meaning that you’ll save on interest because you’ll be paying off your loan faster.
Salary packaging your mortgage payments
Yes, you read that right! With salary packaging, you can pay your mortgage using pre-tax income instead of after-tax earnings. Which means your mortgage repayments are effectively tax-free. Plus, the benefit is applicable to every tax bracket. The fact that you’re able to pay off your mortgage using pre-tax income means you’ll already be saving money. You could then use the difference to increase the amount of your repayments, helping you pay down your loan faster and potentially saving you thousands of dollars in interest.
To make things even easier, you can opt to have your loan repayments deducted directly from your salary. Doing it this way eliminates the need for separate repayments from your bank account, so you don’t even have to think about it every month. Plus, you can sync your mortgage payments with your salary pay cycle, so that your mortgage payment is always on time, which, as we now know, could increase your credit rating.
Setting it up is a simple process, especially when you use a trusted salary packaging provider. Remember to check your employer’s Fringe Benefits Tax status before getting started.
Start saving with salary packaging today
There you have it – all the best ways to get on top of your mortgage. And, if you use salary packaging, you’ll be able to enjoy a world of other benefits too. If you’re looking to get started with salary packaging, contact CBB The Salary Packaging People today. For over 30 years, we’ve helped people make the most of their salaries, including using salary packaging to help them overcome debt and pay off their mortgages. Contact us and start saving today.