A quick one this week, but a very helpful one. Did you know you could reduce the term of your mortgage in a number of ways? There are a few things you can do, the first of which won’t cost anything but you’ll need to speak to someone at your bank.
1. Switch from monthly to fortnightly payments.
Doing so can take five years off of the term of your mortgage. You end making 26 half payments per year instead of the default 12. Throughout the whole journey of looking for a home, both the practical and paper side of the process, not once was it mentioned anywhere we could do this, and more to the point, how much different it could make.
We had an appointment to speak with someone at the bank and they actually brought this up, not us, so we are thankful they did. It was as simple as a few clicks for them and didn’t take any time at all. It’s a bit more fiddly on our end to make sure we have the funds to go in fortnightly but once we set up automatic payments, it became a lot less hassle.
The thought of a 30 year mortgage was not a great one, so this first step to bring it immediately down to 25 years really helped psychologically. But it doesn’t stop there, as the next one is a small extra financial commitment, but again it all adds up when you’re talking about compounding interest.
2. Make additional payments on top of your minimum payments.
We started to make additional $400 payments per month ($200 fortnightly). While this amount is discretionary, doing so brings the projected mortgage term down another five years, which when combined with the step above, equates to a 20 year term. Much more palatable than 30 years, and it also saves a load in interest. I don’t know about you, but while imagining where we’ll be in 20 years is a long shot, it is just about in my horizon. But 30 years is a lot harder.
A good website to compare different payment scenarios is https://moneysmart.gov.au/home-loans/mortgage-calculator
You don’t have to commit to extra payments, or you can just pay less, but if you can spare it, whether through cutting out other items in your budget or putting less into your savings, I think it is worth it. We prefer to smash down the mortgage while the interest rates are low, and for us we would prefer the financial security of having our home paid off sooner if possible.
3. Ask for a lower interest rate.
You never know if you don’t ask, but we did, and they did lower it for us. Simple! It took an extra year off, so every little helps.
We hope this has been useful. When we come across any other useful tips we’ll be sure to share them in a new article.