3 ways to pay off your mortgage faster

Here are 3 ways you can pay off your mortgage faster and save yourself thousands of dollars in interest costs.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Personal Finance

three businessmen high five each other outside an office building with graphic images of graphs and metrics superimposed on the shot.
Personal Finance

3 personal finance tips to help anyone grow richer

Our portfolios can do better with the right financial foundations.

Read more »

Businesswoman whispering in male colleague's ear as he looks surprised
Investing Strategies

5 secrets of ASX millionaires

Wealthy people come in all sorts of shapes and sizes, but they all have some common habits that we could…

Read more »

Three generations of male family members enjoy the company as they plan future financial goals together on a trek outdoors.
Personal Finance

Is 60 too old to start buying ASX shares?

It's never too late to benefit from the wonders of the share market.

Read more »

Woman and man calculating a dividend yield.
Personal Finance

Becoming a millionaire: Why savings accounts aren't the answer

Even high-interest savings accounts can't compete with the returns of ASX shares.

Read more »

Tiger staring with a black background.
How to invest

How to make 7% interest while deciding which ASX shares to buy

Also receive Tesla stock for your trouble of just sitting around.

Read more »

Two people comparing and analysing material.
Personal Finance

How does investing in a term deposit compare with buying ASX shares?

Term deposits look attractive for income, but do they beat ASX shares?

Read more »

Woman with headphones on relaxing and looking at her phone happily.
Personal Finance

How quickly could I build a $30k annual passive income with ASX shares?

The stock market can deliver great yields.

Read more »

Woman smiling with her hands behind her back on her couch, symbolising passive income.
Personal Finance

5 ways to get richer in 2024 without a pay rise

You don't need a pay rise to build your wealth in 2024.

Read more »