Six ways that can help pay off your mortgage early

Paying off your mortgage early will save you money and take a financial load off your shoulders. Here are six ways to get rid of your mortgage debt faster:

Find a lower interest rate

Engage with a mortgage broker and discuss what features of your current loan you want to keep so they can compare the interest rates on similar loans. If you find a better rate elsewhere, your mortgage broker will be able to assist you in making the switch. The beauty of engaging with a broker is they will do all the research to find the right product and best interest rate for you.

Comparison websites can be useful, but they are businesses and could potentially make money through promoted links. They also may not cover all your options.

Switch to fortnightly payments

If you're currently paying monthly repayments, consider switching to fortnightly repayments. By paying half the monthly amount every two weeks you'll make the equivalent of an extra months repayment each year (as each year has 26 fortnights). As well as making an extra month repayment per year you will also save on the compounding interest as interest is calculated daily and charged monthly.

Make extra repayments

Extra repayments on your mortgage can cut your loan by years. Putting your tax refund or bonus into your mortgage could save you thousands in interest.

On a typical 25-year principal and interest mortgage, most of your payments during the first five to eight years go towards paying off interest. So anything extra you put in during that time will reduce the amount of interest you pay and shorten the life of your loan.

It is also a good idea to ask your lender or broker if there are any fees for making extra repayments.

Consider an offset account

An offset account is a savings or transaction account linked to your home loan. Your offset account balance reduces the amount you owe on your mortgage. This reduces the amount of interest you pay and helps you pay off your mortgage faster.

For example, for a $500,000 mortgage, $20,000 in an offset account means you're only charged interest on $480,000.

If your offset balance is always low (for example under $10,000), it may not be worth paying for this feature. Contact your mortgage broker to find out if this option may suit you.

Avoid an interest only loan

Paying both the principal and the interest is the best way to get your mortgage paid off faster.

Most home loans are principal and interest loans. This means repayments reduce the principal (amount borrowed) and cover the interest for the period.

With an interest-only loan, you only pay the interest on the amount you've borrowed. These loans are usually for a set period (for example, five years).

Your principal does not reduce during the interest-only period. This means your debt isn't going down and you'll pay more interest.

Pay lump sum payments pay them off your loan

If you get regular bonuses or overtime from work, or when you get your tax return at the end of the financial year try not to spend it. Instead, pay it off your loan as a lump sum payment.