Paying off your mortgage early might sound like a daunting task, but the benefits are substantial and can greatly enhance your financial wellbeing in the long run. Here’s a breakdown of why paying off your mortgage early is valuable and some practical ways to achieve it.

Why Pay Off Your Mortgage Early?

  1. Save Thousands in Interest: One of the most compelling reasons to pay off your mortgage early is to save money on interest payments. The longer it takes to pay off your mortgage, the more interest you end up paying over the life of the loan. By paying it off sooner, you can significantly reduce the total amount of interest you’ll owe.
  2. Achieve Financial Freedom Sooner: Imagine the peace of mind that comes with owning your home outright. Eliminating mortgage debt frees up your cash flow, allowing you to redirect those funds towards other financial goals such as retirement savings, investments, or even that dream vacation you’ve always wanted to take.
  3. Build Equity Faster: Equity is the difference between the market value of your home and the amount you owe on your mortgage. Paying off your mortgage early accelerates the growth of your equity, providing you with greater financial security and flexibility.
  4. Stress Reduction: Debt, including mortgage debt, can be a significant source of stress for many people. By paying off your mortgage early, you can alleviate this financial burden and enjoy greater peace of mind knowing that you truly own your home.

Ways to Pay Off Your Mortgage Faster

  1. Switch to Fortnightly Payments: Instead of making monthly payments, consider switching to fortnightly payments. By paying half of your monthly amount every two weeks, you’ll make an extra month’s payment each year, which can help you pay off your mortgage sooner.
  2. Make Extra Payments: Whenever you receive extra funds outside your salary, such as tax refunds, bonuses, or inheritances, consider putting some of that money towards your mortgage. Even small additional payments can add up over time and significantly reduce the amount of interest you’ll pay.
  3. Find a Lower Interest Rate: Compare interest rates and consider refinancing your mortgage to secure a lower rate. Alternatively, negotiate with your lender for a better deal or consult with a mortgage broker to explore your options.
  4. Make Higher Repayments: If you’ve managed to secure a lower interest rate but can still afford your previous repayment amount, consider continuing to make higher repayments even with the lower rate. This strategy will help you pay off your mortgage faster and save on interest.
  5. Consider an Offset Account: An offset account is a savings account linked to your mortgage. The balance in this account is offset against your mortgage balance, reducing the amount of interest you owe. By maintaining a higher balance in your offset account, you can effectively reduce the interest you pay on your mortgage. For example, with a $500,000 mortgage and $20,000 in an offset account, interest is only charged on $480,000.
  6. Avoid Interest-Only Loans: While interest-only loans may seem appealing initially because of lower monthly payments, they can end up costing you more in the long run. Opting for a principal and interest loan ensures that you’re actively reducing the amount you owe, helping you pay off your mortgage faster and build equity in your home.

Paying off your mortgage early requires discipline and commitment, but the financial rewards and sense of accomplishment are well worth the effort. By implementing these strategies and making additional payments whenever possible, you can accelerate your journey towards mortgage-free homeownership and secure a brighter financial future.

Article by Katherine Bineham – Co-founder of The Money Sandwich and Marketing & Operations Director