How to pay off your mortgage faster | 23 ways to buy time

The 1987 movie, Wall Street, was an entertaining insight into money markets, capitalism, and of course, greed.

I was too young for it too mean anything then, but revisiting the movie later, something Gordon Gekko said stayed with me:

“Money never sleeps….”

I have seen money work for and against borrowers my mortgage broking career.

Being on the right side of ‘money never sleeping’ can be a difference maker if you want to pay off your mortgage faster.

I show you 23 ways, including calculations, you can make your money work for you, instead of against you. And yes, even while you sleep.

Each of these home loan repayment hacks can be a shortcut to reduce your overall home loan term. When used in combination, they can have a powerful cumulative effect in paying of your mortgage faster.

Should I pay of my mortgage faster?

In many cases the answer is yes.

No more monthly home loan repayments can mean working less or holidaying more, or both.

But there are a few instances when paying of you mortgage faster does not make sense. In my mortgage broking experience, I have met many borrowers who wish they had not paid off their home loan. This is a major reason I recommend you seek financial advice—early.

Before you make any changes to your current plan see get some financial advice from a professional.

Why should I pay off my mortgage faster?

There are heaps of reasons. Usually time-related.

Money. Freedom. Choice. Holidays. Work less. Retirement.

A home loan can be a big financial commitment. In my experience in establishing new home loans, I see borrowers focus three main areas:
– How much can I borrow?
– What is the interest rate?
– What are my monthly repayments?

Most questions concern shorter term implications, which is fair enough. For example, the monthly repayment effectively determines how much you will have leftover each month. That is hugely important.

But paying off a mortgage faster requires a longer-term perspective. A plan. Instead of a monthly outlook we start looking at the potential years ahead.

Take a $600,000 home loan at 7% for a borrower paying minimum repayments only.

A 30yr loan could cost $837,053 in interest.
A 20yr loan could cost $516,430 in interest.
A 10yr loan could cost $235,981 in interest.

Why pay off a mortgage faster? The above illustration provides 837,053 reasons to give it a go.

How to pay off your mortgage faster

Paying off your mortgage faster, while a common aspiration, is often laughed off in everyday conversations. Because it is an unrealistic goal?

Why should it be?

In my experience, paying off your mortgage faster needs borrowers to consider what they can control and what they cannot.

Pay more – Pay often – Take control

In my article on how loan repayments are calculated I explain the three key elements that contribute to minimum home loan repayment calculations.

• Loan amount
• Interest rate
• Loan term

Loan amounts are decided at the outset and once established—that’s it. This is the amount that attracts interest and needs to be paid back. So, this part of the process should get the attention it deserves.

Interest rates get a lot of attention.

Is it warranted? Yes. Lower interest rate can mean lower interest costs.

But can you control interest rates? Only to a limited extend via a fixed rate or split home loan, which in Australia is usually temporary arrangement.

Loan term is commonly 30yrs in Australia. This article is about how to pay off your mortgage faster—earlier.

Income and Spending
Once the home loan is established, income and spending are two areas that fall largely within the borrowers control.

The result of income after expenses is your leftover cash.

This is where borrowers can get proactive.

Reactive borrowers pay the minimum amount owed each month and are less likely to make a significant dent in their projected loan term.

Proactive borrowers do one, some or all of the following hacks. They stay active in looking to reduce any extra interest costs, make their money work for them and pay off their mortgage faster.

Be wary of the hype

For some reason the “paying off your home loan in 7 years” wins a lot of search volume on google? It is a very short timeframe, which sounds appealing.

It is a popular search:

Many of the more sensational claims in paying of your loan over 5 to 7 years suggest investment strategies in addition to repayment strategies.

As there is risk associated with any investment, I will remain focussed on what most people can control—how they could use what money they have.

For anything involving an investment angle get professional financial advice.

And whether you pay your home loan off in 7yrs or 20yrs – paying it off faster might get you something we always seem short on—time.

23 ways to pay off your mortgage faster

My 23 ways of paying off your mortgage faster offers real, practical ways for borrowers to investigate today.

The principle: Small steps now can lead to big impacts over time. Earlier the better.

I work through a specific example of how a proactive approach to a repayment strategy can benefit borrowers by giving back time and money. My example reduces a loan term from 30 years down to 16yrs & 5mths.

I show you:

• Repayment hacks explained with examples

PLUS

• Seven specific calculations to show impact on loan term for key strategies

PLUS

• Calculations showing cumulative impact on loan term when multiple strategies are used

Every borrower is different, some may do more of one and less of the other.

In this example, let’s deal with a 30 year loan with a baseline scenario below:

I show you seven examples of repayment hacks for borrowers to consider and demonstrate how they can combine to wipe 13yrs & 7mths off a 30 year loan term.

HACK 1 – Quick win

Make your first repayment on day one instead of month one.

Beat the bank to the punch by making your first monthly repayment on the first day of your loan. That way you avoid ever paying the interest on your full loan amount.

If you do this and nothing else, by getting on the front foot, our example shows how this repayment strategy can turn a small initial interest saving into over $27,000 in interest over the term of the loan.

It also finishes your loan up 7 months early so maybe a holiday with the interest savings could be on the cards?

This is the start of something. This quick win takes the first 7 months off an overall term reduction of 13yrs & 7mths with our combined hacks.

HACK 2 – Make 13 your favourite number

Savvy borrowers find 13 months in a year.

Minimum monthly repayments are exactly that – the bare minimum. Making more than the minimum repayment can reduce your loan term—it can be significant.

If you do nothing and only make 12 minimum monthly repayments per year
x 30 yrs
= 360 mths
= 30 yrs

The thirteenth month is the secret sauce to knocking over 6yrs of this loan term. Here it is:

“Pay half the monthly repayment, every fortnight”.

Remember, there are 26 fortnights per year.

A long as you can handle this repayment you could save over 6yrs off your home loan.

Oh, and there’s the small matter of saving over $206,000 in life of loan interest.

Paying half a month every fortnight on top of our previous hack makes a big dent in the loan term. We are now 6yrs & 8mths ahead of the 30 year loan term.

HACK 3 – Set up a regular ‘extra’ payment

Little and often can work wonders.

Every night your lender checks your loan balance to calculate the interest you owe them. So, moving some money you won’t miss to your home loan can reduce your home loan balance, and the home loan interest.

“You can’t miss it if you don’t have it.”

You could set up a regular repayment from your savings account, or better still, direct from your payslip. Automatic is good. If you are one step removed from the automatic payment, so too are your emotions.

The sooner the better. You can’t miss it if you don’t have it.

You might be saying to yourself, “but my repayments are already higher than what is asked for”. That is true for many, but just as a rising tide carries all boats, rising interest rates can also catch up to minimum repayments. If this goes unnoticed for years you could inadvertently pay the lender more interest, for longer than you were anticipating.

If you like the idea of paying overs, then a separate, automatic transfer to your loan account removes the risk that minimum repayments catch up to you. This can ensure you are always paying above the minimum required repayment.

For our example, if the only thing you did was pay an extra $200 per month towards your home loan, it could knock over four years of your term and save $138,000 in home loan interest.

This is a great example of small steps – big impact.

What if we did an extra regular payment in addition to our previous two repayment strategies?

Adopting the half a month strategy to these extra payments (so $100 per fortnight), on top of our other hacks can result in an overall term reduction over 9 years. Not to mention over $300,000 in interest saved.

HACK 4 – Offset

An single offset account can make P&I repayments more effective by reducing the amount of interest on each repayment compared to having no offset.

Offset account features sometimes come with extra fees so these need to be justified.

An offset account can a “bolt on” to eligible home loans. So, can this repayment strategy could be used in addition to my other repayment hacks mentioned.

If you just used an offset account, ignoring fees, with an average balance of $20,000 over the life of the loan, it could save 2.5 years and $126,000 in interest.

Adding an offset account feature, in addition to our previous hacks, means we are now over 10 years saved on the 30 year loan term.

HACK 5 – Multiple offsets

Make every dollar work for you.

Multiple offset features take a single offset concept even further.

My article on multiple offsets explains how every dollar that is offset can save home loan interest.

Multiple offset accounts let borrowers hold money in separate accounts while allowing the total of all funds held offset a single home loan.

Say you have another $10,000 in separate accounts – not offset. The example below shows how extra savings, utilising multiple offset, could help you pay off your mortgage faster again. With the extra amount offset we now save 3.5 years off the loan term.

In addition to our previous hacks, scraping together a spare $10,000 and utilising multiple offset accounts gets us close to an 11 year term reduction.

Hack 6 -Make lump sum payments

Make lump sum payments regularly.

If you have the capacity to make extra lump sum payments to your loan then this could be a hack you employ.

The most common source of lump sum funds I see from borrowers are bonus payments and commission.

Our example shows what can happen if you find an extra $5,000 per year over 10 years to commit to debt reduction. It could reduce your loan term by almost 5 years – and could save $186,000 in interest.

Any lump sum payment towards a home loan is good. Regular ones are better. Our combined repayment repayment strategies have now got us to 13 years saved of the loan term.

HACK 7 – Ask for a better rate

Asking for a better rate is an under utilised strategy.

It is a well-known that existing customers often get a bum deal on home loan rates.

If you want to see if you can get a better rate, see my Insider Guide on how to ask for a lower rate.

If you are successful in getting a better rate, the key to making the most of it is to keep your repayments to the same.

If you can handle the same level of repayments and want to pay off your mortgage faster, then view any lender offers to reduce your repayments with caution. These could re-align your term to the original, say 30 year loan term rather than staying on track to pay off your mortgage faster.

Our example shows how 5yrs into this loan we get a 0.70% discount moving the needle from 7.00% to 6.30%.

Keeping the repayments unchanged (as if the rate were still 7.00%) can be worth over 3 years in loan term reduction as well as $162,000 in home loan interest saved.

Don’t underestimate how effective an interest rate reduction can be to long term loan cost and reducing the loan term. Our final calculated hack is the cherry on top of our overall loan reduction from combining these hacks of 13yrs & 7mths.

Insider tips for paying off a mortgage faster

Here are more tips you can consider if you want to pay ff your mortgage faster.

8. Refinance home loan

Lower home loan rates are sometimes only possible by changing lenders.

Cashback incentives can be another of the attractive features of a refinance home loan.

But if the primary focus is still to pay down your loan early don’t forget to consider your loan term when you refinance. Many borrowers reset their loan term to 30yrs without much thought. Often because the focus is on lower repayments, forgetting about the higher overall interest cost from extending their loan term.

9. Justify fees

Fees can be fine, provided you get some benefit from the features they offer—like an offset account.

It is when you are not getting anything for them it can be a problem. Borrowers should consider the loan features they need and if there are fee free or low-fee alternatives to consider. There are many home loan products that charge little in terms of fees.

Many lenders have features that cost around $400 per year. Over a 30 year loan term that amount could approach $12,000.

Based on the “little and often” principal of paying down a loan, $400 per year could potentially be better spent paying off the loan rather than paying for the loan.

10. Shorten the loan term

Shortening a loan term is a strategy brought up often. In my experience, it has merit but does not suit everyone.

Shorter terms have higher minimum repayments than longer terms, so naturally the loan will be finalised earlier.

If you shorten a 30 year loan term to 20 years then you have effectively re-set your finish line. The loan “must” be paid off by the 20 year mark.

One key consideration is around control.

A 30 year loan that you want to pay off in 20 years is something largely within your control. You have the option of paying less for a few months if you need it. Sure, it might extend the loan term but the 20 year point was only ever a target, a goal—not an agreement.

Reducing a loan term can see borrowers give up some control around repayment flexibility. But a shorter term can be just the answer for borrowers who, after considering their options, want to pay off their mortgage faster.

11. Avoid interest only

In my experience as a mortgage broker since 2008 I have seen many borrowers successfully pay off interest only loans. Prior to any intervention by banking regulators these loans attracted the same rates as those with a principal and interest repayment strategy.

However, over the years, treatment of interest only loans changed, and they now attract higher rates, especially for owner-occupied purposes.

That said, interest only loans still offer significant value for the right borrower, as I explain in my article.

12. Beware of fixed rates

Fixed rate homes loans come into play when a borrower wants some certainty around repayments.

If your strategy is to pay off your mortgage faster, then make sure you understand their can be limitations to this strategy with a fixed rate home loan. There are often restrictions around offset accounts, as well as paying too much, too soon on a fixed rate home loan.

13. Split loan

Split home loans can be a solution when a borrower wants to fix but has capacity to overpay beyond what a fixed rate home loan will allow.

A common structure can see a variable rate home loan with flexible overpayment options paired with a fixed rate home loan that offers repayment certainty for a few years.

14. Find more money

Not so easy? Or is it?

There are numerous finance tracker apps that you can use to recognise overspending habits and unused subscriptions – to name key culprits of money wastage.

Banks are increasingly offering their customers insights into their money behaviour. Something that borrowers could use to find more money to redirect towards their home loan.

15. Borrow less

If only buying a house were so simple.

This generally means buying for less, which is a tough proposition for most.

Borrowing less can provide you with options to live mortgage free, earlier. The less you borrow, the lower your loan costs and repayments. Your capacity to reduce your loan balance can be enhanced with lower loan amounts.

Nothing in this list is without compromise and this is perhaps the best example—big picture stuff. It could be a matter of weighing up potential repayments and overall loan cost against other things you value like holidays, or time with family.

Enter the home loan approval process in a measured way. Borrowing a higher loan amount can place you on the backfoot if you plan on paying off you mortgage faster.

Working with a licensed broker can help you weigh up the pros and cons so you get a loan suited to your situation, as opposed to the biggest loan you qualify for.

The above illustration shows just how different two loan amounts can be over a monthly basis, let alone the cost of overall loan interest. A monthly repayment difference of around $1,400 is one thing. Aside from the $200,000 difference in the initial amount that needs to be paid back, there is also the potential for an extra $220,000 in additional interest for the higher loan amount.

16. Avoid lenders mortgage insurance

There are many ways to avoid lenders mortgage insurance (LMI). There are options for different professionals, guarantor home loan and government programs.

Don’t get me wrong, LMI is an enabler for many would-be buyers. Personally, I have paid plenty of lenders mortgage insurance in the past.

LMI is the opposite of our first hack—the quick win. Unlike making a payment on day one, the LMI premium is added to your loan on day one. So, in addition to making your loan amount higher, the LMI can add to the life of the loan interest costs.

17. Avoid a mortgage recasting

A recast of a mortgage is when a lender recalculates your repayments to match the term you originally opted for.

You might have paid advanced payments and are now on a loan term trajectory of 20 years instead of the original 30 years.

Some lenders will recalculate your loan repayments (lower them) to match the original loan term.

On the face of it you have lower repayments. The extra free cash can be a sugar hit. But recasting your mortgage can cost more over the loan term compared to staying on the higher repayments.

Stay alert and before accepting any invitations to lower your repayments make sure it matches your goals and objectives.

18. Watch out for honeymoon rates

In my experience in mortgage broking, many would-be borrowers are aware of honeymoon rates. However, they are not always obvious so it can help to know where to look for them. Here are a couple of common examples of how a rate could jump up on a borrower:

• The classic honeymoon rate is a discounted variable rate that reverts to a higher rate after the initial low rate period – say, two-years.
• While not considered a honeymoon rate, but equally as impactful, is the rate fixed rates revert to after the fixed period is over.

I have seen borrower come off an initially good fixed rate to find themselves 1%, or more, above where they should be.

Stay alert and regularly check rates. Be proactive.

My Insider Guide provides tips on how to ask your lender for a better rate.

19. Other debts

My home loan hacks have only dealt with a home loan in isolation. This is not neccessarily a reflection of real-life as borrowers may also have credit cards or personal loans. Borrowers should understand how much each loan costs them. One could be 20% interest and another 6%.

Interest costs can be calculated differently depending on the type of loan it is. That is why there is no “one size fits all” approach to tackling multiple, different debts.

This is an area where I strongly recommend seeking professional financial advice.

Some left-field ideas

There is no such thing as a bad idea. Right?

Any extra, spare money you can put towards your home loan can help you pay off your mortgage faster.

Some of these involve making extra income so get some accounting advice.

20. Buy a coffee machine

Maybe you have already done the maths? Maybe your have consciously avoided so?

I will save you the maths, it does not take too many coffees to make your money back on a reasonable coffee maker. This is a great example of “finding some spare money” to put towards your home loan.

Now having a coffee out can become what it used to be – a treat!

I will let you do your own maths on buying vs making lunch….

21. Rent a room

Compromise? Maybe. For some borrowers who work away from home – maybe not.

Just another option for borrowers to consider if their goal is to find more money to put towards their home loan.

22. Start a side hustle

Got time, talent, drive?

Low-skill. High skill. It doesn’t matter. There are numerous ways to earn extra, be it in your neighbourhood or online.

23. Make sacrifices

Not original.

Not left field.

Just wanted to end on this because sacrifice, both big and small, are part of the process if you want to pay off your mortgage faster.

Insider tips: Mistakes to avoid

I have seen borrows make these mistakes. They are easy to make too.

Why not learn from them?

Check your offset is linked

Don’t assume anything. Every night an offset account is not linked to an eligible home loan is a night your money is not working against paying home loan interest.

Sometimes borrowers make variations to their home loan, like splitting their loans. This can sometimes unlink an offset account.

Offset higher than loan?

Not common but I have seen this.

If the balance of your offset account is higher than the loan it is offsetting, the extra money could be wasted.

The extra money is unlikely to earn interest in an offset account, so there could be a better use for it.

Close loan accidentally

When we start talking about paying off your home loan accidentally, on one hand, it is a good problem to have.

On the other, you might like to hang onto your loan facility.

Many lenders will automatically close a loan when the balance reaches zero.

You qualified for the loan. You have paid it down ahead of time. So, consider whether you need access to this loan going forward. It could still be used as an emergency fund, for renovations or similar.

FAQs

What happens after I have paid off my mortgage?

Paying off your home loan and releasing the mortgage are two different things.

When you pay off your home loan, it usually involves the loan balance reaching zero and the loan facility closing.

The mortgage is what the lender registers with the titles office. The mortgage is the part of the home loan process that provides the lender with the security for the home loan.

When you have paid off your home loan, many borrowers take the extra step of asking the lender to release the mortgage registered on the property. Once the discharge of mortgage has been registered the lenders name (along with any rights) is removed from the title.

Does paying off your mortgage faster suit everyone?

No.

Paying off your mortgage faster suits many Australian borrowers, but not all.

There are many reasons not to pay off your mortgage faster. I list some of them here.

• Some investment strategies
  If you plan on renting out your property in the future this can be a reason not to pay off your mortgage faster.
• Preserve funds
  For emergency, education costs, time off work, renovations.
• You could have higher cost loans to prioritise
• Reduce reliance on a lender to approve future loans
• You could get a higher return elsewhere – speak to business and financial advisors.

Are their penalties for paying off your mortgage faster?

In Australian lending, there is generally no extra penalties for paying your mortgage off faster if you have a variable home loan.

A lender is allowed to charge nominal fees for processing the release of a mortgage. These should be detailed in your home loan offer documentation.

As far as penalties are concerned, these are most prevalent in fixed rate home loans. Also known as break costs or early repayment adjustments, I explain these in my article on fixed rate home loans.

Download my free eBook explaining the strategies I see reall borrowers us to pay off their home loans – in under 10yrs.

Final word

I have taken you through seven different repayment hacks to pay off your mortgage faster—with calculations. These hacks could be used in isolation or in combination.

All the repayment strategies I’ve described can have a positive impact in reducing your overall loan term— some more than others.

Don’t assume lenders make changes to help you pay off your home faster. They just make them within the rules of the loan agreement. It is up to you to take initiative if you want to pay off you home loan faster.

In my experience, the borrowers who pay off their mortgage faster are the proactive ones. Autopilot can work, but you need to proactively put some repayment strategies into play as part of any automated process.

Whatever you decide to do, it needs to match your goals and objectives. So, I recommend you consult with a mortgage professional for implementing any changes to your current plan.