Borrow
The remarkably simple way to pay off your mortgage sooner
For those looking to get out of debt quicker, a mortgage broker has explained a remarkably simple trick to pay off a home loan sooner.
The remarkably simple way to pay off your mortgage sooner
For those looking to get out of debt quicker, a mortgage broker has explained a remarkably simple trick to pay off a home loan sooner.
In a conversation with nestegg, Two Red Shoes’ mortgage broker, Rebecca Jarrett Dalton, explained how mortgage-holders should switch their payment cycles.
“The quickest way to pay off a [mortgage] is weekly or fortnightly repayments,” Ms Jarrett Dalton said.
Ms Jarrett Dalton pointed out that this is because interest is calculated on a daily basis.
“Most banks calculate [a weekly or fortnightly repayment] by taking the monthly repayment and dividing it by four or two.”
“But there’s actually more than four weeks in a month and more than two fortnights. So, you accidentally pay 1/12th of a month extra repayment and that is a whole month of extra repayment in a year,” Ms Jarrett Dalton said.
These small changes create a compounding effect on the loan, due to interest being calculated on daily outstanding balance as well as an accumulative effect of a whole month’s repayment each year.
“An average loan of $400,000 will save about five years and $80,000 on interest,” Ms Jarrett Dalton explained.
For those looking to pay off a loan even quicker, Ms Jarrett Dalton said investors could make small additional repayments.
“If you can take it a little further and add $20 or $50 and bump it up, you’ll be able to pay it off even faster,” Ms Jarrett Dalton said.
“An offset account can be really effective if you have a large enough sum of money.”
“Another really effective way, and I’ve done this myself, is sending base income to the spending account and anything over base to go straight into the home loan.
“Most of us don’t rely on that variable income for our weekly budget, so it’s spare. If you haven’t seen it, you haven’t missed it,” Ms Jarrett Dalton said.
She explained that investors in a low interest rate environment where savings rates might be below 2 per cent, mortgage-holders are better off using additional savings to pay down their mortgage.
“I call this supercharging. You can have your money sitting in a savings account and earning at the most 1-point something, or the flip side, if you have a loan, your saving interest that could be almost double.”
“There’s also no tax on interest that you save, but of course you have to declare any interest earned on your tax return,” Ms Jarrett Dalton concluded.
About the author
About the author
Loans
Navigating the Australian student loan landscape: Options for financing your education
Securing financing for post-secondary education is a significant step for many Australians, offering a pathway to advancing career prospects and achieving personal growth. Read more
Loans
Secured vs. unsecured personal loans: Which is right for you?
When considering a personal loan in Australia, one of the first decisions you'll face is whether to opt for a secured or an unsecured loan. Each type has distinct advantages and drawbacks, and the ...Read more
Loans
Weighing up interest-only home loans: What Australian borrowers need to know
Interest-only home loans have become a topic of considerable interest among Australian borrowers, offering a unique approach to home financing. This type of loan allows borrowers to pay only the ...Read more
Loans
Bridging loans demystified: Navigating your next property purchase in Australia
Navigating the property market can be daunting, especially when timing issues arise between selling your current home and purchasing a new one. Bridging loans offers a solution, providing the ...Read more
Loans
Ultimate guide to green loans: Financing sustainable home projects in Australia
As Australians become increasingly conscious of their environmental impact, many are turning to sustainable home improvements to reduce their carbon footprint and enhance energy efficiencyRead more
Loans
CBA launches digital home loan with 10-minute application
According to the bank, Unloan will provide a single low-cost interest rate to borrowers with an application time of as little as ten minutes. Read more
Loans
Are central banks weighing the economic pain of rate hikes?
The hype around interest rate hikes usually centres around the urgent and fundamental need to alleviate the consequences of inflation – but does this monetary policy do more harm than good? Read more
Loans
As rates begin to rise, how much more will new borrowers pay?
Mortgage holders could be asked to pay over $1,000 more per month due to rising interest rates. Read more
Loans
Navigating the Australian student loan landscape: Options for financing your education
Securing financing for post-secondary education is a significant step for many Australians, offering a pathway to advancing career prospects and achieving personal growth. Read more
Loans
Secured vs. unsecured personal loans: Which is right for you?
When considering a personal loan in Australia, one of the first decisions you'll face is whether to opt for a secured or an unsecured loan. Each type has distinct advantages and drawbacks, and the ...Read more
Loans
Weighing up interest-only home loans: What Australian borrowers need to know
Interest-only home loans have become a topic of considerable interest among Australian borrowers, offering a unique approach to home financing. This type of loan allows borrowers to pay only the ...Read more
Loans
Bridging loans demystified: Navigating your next property purchase in Australia
Navigating the property market can be daunting, especially when timing issues arise between selling your current home and purchasing a new one. Bridging loans offers a solution, providing the ...Read more
Loans
Ultimate guide to green loans: Financing sustainable home projects in Australia
As Australians become increasingly conscious of their environmental impact, many are turning to sustainable home improvements to reduce their carbon footprint and enhance energy efficiencyRead more
Loans
CBA launches digital home loan with 10-minute application
According to the bank, Unloan will provide a single low-cost interest rate to borrowers with an application time of as little as ten minutes. Read more
Loans
Are central banks weighing the economic pain of rate hikes?
The hype around interest rate hikes usually centres around the urgent and fundamental need to alleviate the consequences of inflation – but does this monetary policy do more harm than good? Read more
Loans
As rates begin to rise, how much more will new borrowers pay?
Mortgage holders could be asked to pay over $1,000 more per month due to rising interest rates. Read more