Have you ever wondered how great it would feel to have your mortgage paid off? Most of us dream of the day we can say, “We’re debt-free!”, but very few of us can picture this happening before we reach that age where candles dominate the cake!
The great news is that it is possible to slash and burn your mortgage and do it in a time frame that’s not so far away that it seems impossible to comprehend!
Here are five tips to say goodbye to your home loan faster…
If you’ve decided that getting rid of your mortgage as quickly as possible is a priority for you, it’s important to make sure your partner is also feeling the same way.
At the end of the day, if you have a joint-finance arrangement (and we strongly suggest you do, purely from an optimal money management perspective), then it’s vital you and your partner are both clear you’re working towards the same goals.
This means there should never be any “financial infidelity” going on and honest spending habits need to be identified from the get-go. If you’re adamant on having separate “spending money”, it’s in your financial best interest to split your seven-day float (see third tip) and keep everything else jointly linked.
Set up a 100 per cent transactional offset account linked to your mortgage to reduce the amount of interest you’re charged on your home loan repayments.
The savings you can make by doing this – as opposed to just pouring all of your money directly into your mortgage – is enormous, and you will be able to pay down the principal faster while maintaining your access to cash flow.
Basically, you want to send all of your income here, and from inside this account, you can organise direct debits and other automatic payments.
Arrange to automatically transfer a weekly allowance – a.k.a. a seven-day float – to cover your day-to-day living costs from your offset account into a direct debit account. This is the total amount of money you will have to spend each week on living and lifestyle costs, such as groceries for that week, your daily “must have” coffee or any takeaway food or activities that you’ve decided you’re comfortable regularly spending your money on.
This encourages a “make it last” mindset, so once this apportioned amount is gone, it’s gone until your next seven-day float pay day.
A handy hint here: Thursday, or the day you do the weekly grocery shop, is a good day to pay yourself your “spending money” as you will have money for the upcoming weekend and a fully stocked kitchen, so if you’re running low on funds after a big weekend, you know that you won’t go hungry that week.
Close out or consolidate your debts to reduce your monthly expenses. This should result in a greater monthly surplus, which can go towards the mortgage in your offset account.
Classic examples here are high-interest credit cards and short-term personal loans such as car loans with really high monthly repayments.
Also, it’s a good idea to speak to a mortgage broker to work out if the current home loan you have is actually the best option to achieve your main goal.
If you’re willing to get a second or third job, you can throw this extra money at your mortgage. Feel free to think outside the box here.
For example, if you already drive to work, maybe you could consider turning this time into an opportunity to drive for Uber as well. This way, you’ll actually get paid for your travel time, and it shouldn’t become too much of an inconvenience if you stick to passengers going in the same direction as you.
Ultimately, it is possible to pay off your mortgage sooner by implementing these simple suggestions, but it does rely on you obeying the number one foundational principle of money management: don’t spend more than you earn.
Sounds like common sense, right? Sadly, in reality it’s not that common.