Home ownership is fairly high on the list of personal priorities for most Australians. Although, according to the RBA, many Aussies are ahead of their mortgage repayments due to an extended period of low interest rates, it seems that the average family still takes somewhere between 25 and 30 years to pay out their home loan.
Historically this was the dream. Get married, buy a home and repay the mortgage just in time for your retirement. However much has changes and today’s borrowers want to have a fuller life than was accepted by their parents. They want to have it all. Travel, work less, have financial independence sooner and of course pay off their mortgage sooner. To achieve more financially you would need to put n more effort towards this goal. Here are some strategies to help you get there sooner.
Conservatism is important when it comes to borrowing. You may not be able make your first home your dream home. However by saving a larger deposit and borrowing less you have a better opportunity at becoming debt free sooner. Home buyers who take on huge mortgages are carrying a greater risk of loss if they become unemployed or experience some kind of unforeseen event. Smaller home loans are more manageable. Also loans under 80% do not incur the cost of mortgage insurance which can come to thousands of dollars.
The old set and forget home loans are history. Our parents would have one home loan for 30 years. They would say – if it works why change it? However today there is more diversity in the home loans on offer and new products come out annually. It is important to compare your home loan to those on offer every year to ensure that you still have a great deal.
Make sure that your home loan comes with an 100% offset account. This account will allow you to reduce the interest costs of your home loan by the interest accumulated on the money kept in your offset account. Have your pay deposited into the offset account and sit there for as long as possible. Lenders calculate the interest rate on mortgages on the daily outstanding balance…every little bit help.
Paying off a mortgage sooner will require the borrower to make extra loan repayments off the loan principal in addition to the set repayments. If all you do is make the set repayments, you will take 30 years to pay off your mortgage. However paying 13 times a year instead of 12 will get you miles ahead. Furthermore moving to a fortnightly payment instead of a monthly one will also help to repay the loan years sooner.
Managing your finances better can yield monthly savings which can be applied to mortgage reduction. Keeping other debts in check and not carrying credit card balances from month to month for example will help borrowers to have more money left at end of the month to apply to mortgage debt reduction. Better financial management will indeed help you achieve complete home ownership sooner. Do you have the discipline required?