5 Ways To Pay Off Your Mortgage FASTER? 2023

interest rates are increasing and it looks like they're going to increase for the next couple of months according to the RBA it's really making it quite challenging for people who have mortgage repayments to make and seeing the price of groceries double since the last time I went shopping because I've now been getting hellofresh and Marley spoon is absolutely ridiculous we've seen interest rates increase month after month with no end in sight consumer confidence is low at the moment consumer spending is decreasing business confidence is low all in an attempt to make the economy slow down and we are seeing the effects of it at the moment however interest rates are still quite high but until interest rates actually fall home loan repayments are still quite high now if you're looking to pay down your mortgage faster yes you can say oh I'm just going to allocate an extra couple of hundred dollars per month towards paying down my home loan well it's easier said than done it's important to realize what this actually looks like and what steps they're going to take to get you there if you have a proper plan in place then you're going to be able to execute it's going to be more efficient and you're definitely going to be able to pay down that home loan quicker as opposed to not having a plan and just saying you're going to pay it down you're really just saying an empty promise to yourself so here are five ways that you can pay down your home loan faster one switch your monthly repayments to either fortnightly or weekly repayments so we're going to use a calculator here just so I can explain it a little bit better so say you've got a home loan worth eight hundred thousand dollars say the interest rate is about six percent and your loan term is for 30 years now as you can see if you've got monthly repayments you'll be paying about 4 796 dollars per month and the total interest over the lifespan of your loan so that's 30 years is 926 000 however if you were to switch from paying monthly to fortnightly you can see that your repayment decreases now your payment will go down to 2 398 and the interest that you you've paid over the lifespan of that loan is 728 000 essentially meaning you've saved about 198 000 in interest which is absolutely crazy now you can see here as well which not only will you save on interest but it'll also save you some time and it will cut off about 5.5 years off your loan now you can also see here as well the weekly repayments obviously it's lower in terms of the interest saved it's not too different to the interest saved for fortnightly and obviously in terms of time saved as well it's quite similar and having your repayments paid weekly can be a little bit of a nuisance especially if you are getting paid through your job on a fortnightly or monthly basis but you've got money coming out on a weekly basis it just makes a little bit harder when it comes to budgeting that now when you are paying monthly repayments if you think about it in that whole year you're only going to be making 12 repayments towards your loan whereas if you switch it up to a fortnightly payment then you'll be able to to make 24 repayments towards that loan so that essentially means that loan balance will decrease even faster so there's one way that you can definitely pay down your loan faster just by making that small switch over from monthly to fortnightly payments and having it aligned to your pay cycle as well two make additional repayments so let's use calculations here as well so you get the full value in looking at the figures that you're actually saving on so if we were to put through eight hundred thousand dollars as your home loan six percent over 30 years and let's say you're a payment frequency is monthly and say you are going to allocate an extra five hundred dollars per month towards your loan you can see that your repayments go from four thousand eight hundred dollars a month to about five thousand three hundred dollars per month and that can save you about six and a half years on your loan term and if you have a look at the interest saved as well just by putting an extra 500 a month you'll be able to save 230 two thousand dollars over the lifespan of your loan in just interest payment now what if we were to combine this with making additional repayments along with fortnightly repayments let's have a look what that looks like so if we were to change that to fortnightly and obviously five hundred dollars extra a month fortnightly would be half of that so 250 dollars we can see here that you can save about seven years almost on your home loan and in terms of the interest sale it's about two hundred and forty six thousand dollars now of course this scenario won't work for everyone you might have less time left on your loan but it's important to see the different options that are available if you are looking at paying down your loan faster now in terms of making additional repayments you might think where are you going to get that money from and you might not be super convinced on the idea of making extra repayments but if you were to think about say your Investment Portfolio or maybe a property that you've purchased and say we take a conservative rate of about five percent growth and if you decide to compound that over 30 years what does that portfolio what does that property look like in the next 30 Years is that a number that you're happy with and obviously we need to take into account inflation as well is that a number that you see in the next 30 Years that you're going to be happy with if not then it might be a good time to start making those additional repayments and looking at alternative streams of income where you can generate extra money to put down towards your home loan and pay it down faster and obviously we've got time on our hands being as young as we are today compared to in the future it's going to be easier to look at opportunities around side hustles if you're thinking of making some passive income and you don't know where to start I've actually done a video on this last week which I'll leave above here and also down below is also make sure you check that out there are always going to be opportunities out there it's just up to mindset you can make things happen otherwise things will happen to you three not paying off your loan this is an interesting one because you might be thinking how can I pay off my loan quicker if I'm not actually paying down my loan well this is where an offset account comes in this is usually set up for you when you get a home loan however most people don't actually know the purpose for it and how it actually works so say you have a loan of about five hundred thousand dollars now typically you'll be charged interest on that full amount and you'll have to make repayments on that full loan amount but let's say you've got twenty thousand dollars sitting in your offset account so you've got your five hundred thousand dollar loan here but you've got twenty thousand dollars in your offset account now how the interest will be calculated is that that twenty thousand dollars will be deducted from that five hundred thousand dollars leaving you with four hundred and eighty thousand dollars and that is what you pay interest on the bank does this because they can see that you've got that money in that bank account you could use that money to pay down the loan however you've got an offset account so they do give you that benefit of reducing your loan so the higher you have in your offset account the lower your interest is going to be in terms of what you pay for the total amount so let's have a look at the difference of what an offset account actually makes with numbers so let's say again here we've got eight hundred thousand dollars for our loan 6 percent 30 years monthly now let's say our offset account has a balance of twenty thousand dollars we can see here that if we've got twenty thousand dollars we can save about ninety three thousand or ninety four thousand dollars worth of Interest now that is also saving us about a year and seven months off our loan term now let's compare that to a hundred thousand dollars say we've got a hundred thousand dollars in our offset account as you can see you will then save about three hundred and sixty nine thousand dollars from interest payments and it'll also cut down your loan term by six years and five months so this can be quite a helpful way if you don't want to contribute directly to your home loan because you want that money on the side say for your savings as an emergency fund but you'll still be able to pay down your loan and save some time off your loan a lot of people tend to credit their salaries or their rent or any additional income that they get into this offset account so that it does actually offset the interest that you have towards your loan four find a lower interest rate comparison websites like canstar or finder.com are great websites to see what other rates look like around you all of that can seem quite confusing looking at different websites so what I do recommend is speaking to a mortgage broker because because they have access to multiple lenders and the product offerings so they would know what bank is offering the best rate for you however a lot of people may just step into a bank as well however they're only going to provide you with a rate that they've got and they've got a biased opinion as well so speaking to a mortgage broker is the better option because they can look at either refinancing your loan for you or looking at bringing down that interest rate Five avoid an interest-only loan having an interest-only loan means that you're not actually paying down the principal of the loan so when you set up a loan you've got the principal component and the interest component having an interest only means that you're paying just the interest component so the principal is never being paid down typically interest-only loan loans are only available for five years however if you are looking at paying down your loan faster it would be better idea if you can to switch it over to a principal plus interest loan and these interest rates on these loans are also much lower as well having an interest Zone alone means it's got a higher interest rate this can all be quite difficult to navigate especially during times like this so I highly suggest that you speak to a mortgage broker they've got access to multiple lenders so you will know what is the best deal at the moment for your scenario sit with them and let them know that you're wanting to pay down your loan quicker they can also display some tips and tricks for you as well I hope you found this video useful any questions leave them down below and I'll see you in my next video bye guys

Channel: Success By Sanjna

Views: 27,018

Keywords: sydney, personal finance, investing, money, career, big 4, risk consulting, kpmg, audit, self development, property, crypto, real estate, productivity, nischa

Id: qBWb7949Prw

Length: 9min 43sec (583 seconds)

Published: Thu Jun 29 2023