Who wouldn’t want to pay their home off faster? Everyone can do it at any point! What gets in the way is lack of knowledge or understanding and then action. I am going to show you a few easily actioned ways to pay your home off faster by having your money work for you.
Do you know how much it actually costs to own a property and that it takes 30 years to pay it off? This might spark you into action!
Let’s look at a $450k mortgage at 6.25% interest paid over 30 years. It will cost you $997,461 to pay that mortgage off in 30 years.
$547,462 of that amount is interest. Yes, you will be paying more interest than what your debt is!
Now that I have your attention, let’s look at simple, easy to implement ways to pay your mortgage off quicker.
The first and easiest way to pay your mortgage off earlier is to pay it more often. DO NOT call your bank and say, “I want to pay my mortgage more often.” What they will do is reschedule your payments to as often as you want, but with only the minimum payment. What you can do is take your monthly mortgage payment split it in half and pay that every 2 weeks. Better yet, divide the payment by 4 and pay that amount weekly.
By doing this, two things will happen, firstly, you make one extra monthly payment a year. Which means you will be paying more often, slicing at least 5 years off your mortgage and at least $121k in interest!
The interest on your mortgage is calculated daily. If you are paying toward your mortgage more often, that means your interest incurred will be reduced with each payment.
The next action you can take is to set up an offset account on your mortgage. This is where we get your money working for you. First off you need to have ALL of your money organised smartly. This means it is either making you money or it is saving you money.
Most people put their money in a savings account. This is actually a losing account. The average interest rate in these accounts is 1.5%. Inflation last year was 2.08%. This means you were losing 0.5% on your money having it in a savings account.
You will have your money working for you if you deposit it in an offset account to your mortgage. Every dollar in your offset account reduces the amount interest is calculated on. So rather than using your money to pay down your mortgage, you can save it for holidays or emergencies and still have it work for you by reducing your mortgage value.
Deposit every extra dollar you have into the offset account, where it works harder for you. Even if it is in there for just one day; because remember interest is calculated daily! Some banks will allow you to have multiple offset accounts, so you can still divide your money between savings and transactions.
Make extra payments. You will already do this by making fortnightly or weekly payments. In order to do this, you may have to look at your spending to see how you can reduce it. One way is to pay off your credit cards and other debts quicker. Then you can put the money you were paying for those toward your mortgage.
For those of you who have your money working for you through positively geared property investments, you can put the money from those onto your mortgage.
These are just a few of the strategies you can use to pay your home off in as little as 10 years. All by having your money work for you.
Thank you to our guest contributor Lindsey Galloway, Positively Geared Property Specialist at JBJ Haven.
Hello! My name is Lindsey Galloway. I’ve been learning about and investing in property for 21 years. I have not worked in a regular job for 4.5 years because I used property to gain financial freedom. Now I want to teach YOU to harness the power of money to create your own wealth.
If you would like to learn more ways to have your money work for you, email Lindsey@JBJHaven.com.au with the subject FREE MONEY TALK to set up a free consultation.