With mortgage stress mounting and the rising cost of homeownership putting pressure on many households around Australia, it can feel like your mortgage will last forever. There are a few commonsense, real world tips that can help cut down the length of time that you’ll have that repayment hanging above your head.
MAKE ADDITIONAL REPAYMENTS
I know this one sounds like stupidly common knowledge, but as you would know the kicker on your mortgage isn’t the principal amount, but the interest. Making extra repayments off your mortgage can save you a truckload of interest in the long run. When interest rates are low, you can continue the additional repayments and get ahead rather than pocketing the savings.
Another way to cut down on your interest is to change your repayments to fortnightly rather than monthly. As your interest compounds daily, putting half of your monthly payment in every fortnight you can reduce the amount of interest that you accumulate.
USE YOUR REDRAW
If you come in to a significant sum of money, or even savings, hold the cash in your mortgage and redraw when you need the funds. This is also true for other sums of money, such as your Family Tax Benefit Payment. Similar to making additional repayments, this will minimise the amount of interest that compounds on the loan and soon enough you will start to see results!
SET UP AN OFFSET ACCOUNT
An offset account works to counteract the internet being paid on the loan and works essentially as a transaction account linked to your mortgage. This is good if you are saving and can hold sums of money in it, yet still need to be able to access your money at all times. For our working mums and dads, it might be beneficial to nominate your Childcare Rebate be paid out fortnightly to you and hold it in your offset account until your Childcare fees need to be paid.
Make the most of this offset account by having all incoming funds deposited in to this account and hold as much in there as possible. If you can, use the interest free periods on your credit cards and hold the money you would use to pay it off in your offset account until you have to pay them off.
These are just a few commonsense ways that you can help save some money in the long term. As with everything, it can be a waiting game and you might not start to see tangible results for a little while. We can guarantee though that your future self will thank you for not sticking your head in the sand and taking steps to help yourself in the coming years!
Joel Robbie is the CEO and Co-Founder of Nod, a digital platform where you get advice about money from an expert delivered to your mobile.