Options for repaying your mortgage
This article is part of a fictional case study series following "Sarah", a typical first home buyer in Victoria. Read each article to follow "Sarah" through a variety of articles exploring issues related to buying a home.
Saving up for a deposit is just the beginning. As any first home owner knows, reality hits when that first mortgage payment comes your way…
That’s what Sarah found, anyway. After a few months of living in her own home and decorating it the way she wanted, making little changes and repairs here and there, she found the glow slowly wore off.
Oh, she still loved the house. But paying the mortgage every month made her think about the next 30 years. Would it really take her that long to pay it all off?
Thankfully, not necessarily. There are a few options you can pay down your mortgage quicker, and she quickly discovered a few of them.
Remember, this isn’t just about counting pennies. By adding up extra repayments, you can potentially save tens of thousands of dollars over the life of a loan. This is what Sarah started trying:
- She made an extra repayment every six months. That tax return comes in handy, and so does the extra savings you build up. Even making those couple of repayments will save Sarah a few years on her loan.
- She started putting money in her offset account. Even just $10,000 in there will help reduce thousands of dollars in interest. Sarah opted to get her pay directly put in that account, so she’d always have money working for her.
- Make repayments fortnightly instead of monthly. This can help pay off your loan off quicker and with less interest. By halving your monthly repayment and paying it fortnightly you'll make 26 payments a year.
The other option Sarah looked at is an offset facility. By putting some extra money in there, she can reduce the interest she pays every month. The best part? She can take that money out if she ever runs into an emergency.
Maybe you can’t afford a large extra repayment every so often. That’s not a problem – even an extra $100 every month can go a long way. Remember, just as Sarah found out – every little bit counts.
Sarah thought it would take so much money to pay her mortgage early, but even an extra $100 a month pays it down so much faster.