Most people want to get rid of their mortgages as fast as possible.
After all, even at low interest rates, the longer you hold a loan, the more money you have to spend on it. A $500,000 loan for 30 years costs $358,949 at an interest rate of 4 per cent. But if you pay it off in 20 years, it costs only $226,751 in interest.
So, how can you shorten the life of your loan and save yourself some interest? Even if you’re on a fixed-rate loan, there are a few ways to do it.
Wait until the end of your fixed term
You can pay off as much as you like off your mortgage at the end of its fixed term, without any penalty. The big drawback with this is that the opportunity may be a few years or months away, depending on how long you’ve fixed for.
In any case, it can be a good idea to keep your fixed-rate expiry top-of-mind and be ready to take action when the day comes.
Pay off a chunk during the fixed term
Depending on your lender, you may be able to pay off part of your mortgage (sometimes, up to 5 per cent) in any year without any additional fees. There might be a minimum lump sum that has to be paid.
Not sure what your lender requires? Please get in touch with us – we can help facilitate the payment and check what your lender will allow you to pay off without penalties.
Any payments over that limit may incur a fee. How much this depends on your current interest rate and how that compares to what the bank could get from other borrowers in the market.
Get a quote before you go ahead to help you make sure it’s worthwhile. In some cases, it could be more effective to increase your regular repayments instead.
It’s worth doing
Some lenders estimate that paying $15,000 off a $250,000 loan could save over $10,000 in interest costs. This is based on an interest rate of 4 per cent, monthly repayments and a 30-year term.
With interest rates so low in savings accounts, it can make even more sense to put your funds to work reducing the amount you owe.
We can help
Get in touch today to discuss the right option for you. We can help you understand your options and tailor a strategy to get you mortgage-free faster.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.