Paying off a mortgage is one of the primary financial goals many Australians have – if not the sole one.
A home is often a family's largest asset, so paying off the mortgage is a big step towards financial freedom and living a comfortable retirement.
Unfortunately, it remains a massive task to accomplish – even with interest rates at their lowest levels in history.
So here are three tips for paying off your mortgage faster, so you can spend your hard-earned money on more important things!
Get a better rate
Even though interest rates are close to zero, many banks haven't fully passed on these cuts. That's why (if you haven't already), you should pick up the phone today and ask Commonwealth Bank of Australia (ASX: CBA), or whichever bank you have your loan through, if you're getting the lowest rate you can. Even shaving 0.2% off your mortgage rate can save you thousands of dollars over the lifespan of the loan.
Who would you rather have that extra dough – you, or your bank? Exactly!
Pay more than the minimum repayments
A principal-and-interest loan sees interest-dominated repayments required at the start of the loan, which taper over time as you pay off more of the principal. That's why making extra repayments on top of the minimum amount required can dramatically shave off years (and interest charges) from your loan. It can also help protect you from the possibility of higher interest rates down the road.
If you're in your first year of a 25-year mortgage, every extra $100 you pay is $100 you won't pay interest on for 25 years. How's that for a return?!
Invest alongside your loan
Many people save investing for when the mortgage is paid off, but there's a better way to do it if you're careful.
Say you have an interest rate of 2.5% on your mortgage. If you invest in an ASX dividend share that pays you 4% a year in dividends, you can use this extra passive income to help you make additional payments down the road, all whilst holding an income-producing asset.
Of course, this option isn't for the faint of heart, as ASX investments can fluctuate wildly in value and some won't always pay consistent dividends. But if used prudently, I think this is a path anyone with a mortgage can use to their advantage.
