Mortgage reduction tactics

Lauren Leisk, Yahoo!7 Moneyhound Updated February 20, 2012, 10:00 am

Buying a house is usually the biggest and most important expense you’ll ever make. As such, paying off the mortgage is a top priority for most homeowners.

Here are a few tips from home loan experts on how to shave years off your mortgage repayments.

Get an offset account

An offset account is a powerful tool. If you have all your income, such as your salary, rental income and any other investment pointing into this account, the interest kicks in for every dollar and is calculated automatically on a daily basis.

More from Moneyhound: Three steps to reduce your home insurance premium

Homeowners should develop the habit of putting all of their spare cash into their offset account – therefore, after a lesser amount of interest being charged from their principle and interest repayment, they are effectively contributing more towards principle repayment.

Plus, the offset account performs the same as a savings account and can be easily accessed via ATM/counter/online. In other words, people can just manage only one account instead of having multiple.

- Sunday Jiang, Australian Mortgage Brokers, Sydney

Review and add

Review your expenses every three months to see if you can cut down on unnecessary costs – try public transport, cut down on luxuries and so on. Then, look at your current repayments and add an affordable amount to the repayment you are making. If you continue to review and add regularly you will gradually make greater and greater repayments, thereby cutting more from the life of your loan.

- Stephen Rossiter, Mortgage Choice Surry Hills, NSW

Increase the frequency

One of the best ways to reduce the term of the loan is to switch from making monthly payments to fortnightly payments. Firstly, find out what the monthly payment is and pay half of it each fortnight. This will give you an extra month’s repayment by the end of each year and in turn will reduce the loan quickly. At the beginning of the loan there is more interest than principal being paid so by making extra payments each year you will reduce the amount owing faster and increase the ratio of principal to interest faster in your favour.

Also, If you have any existing personal loans or credit card debt, consider a top up to pay out these often higher interest rate loans then make the same payments you are making on those but to your home loan. Not only will you reduce the interest you are paying but reduce your overall debt faster.

- Robert Thornton Aussie Home Loans Glenelg, SA

Calculate: Use our extra repayments calculator to see how much you could save on your loan

Adopt good habits, not random payments

As with most things in life, you tend to form habits. Your mortgage repayments should be no different. The best tip to paying your mortgage off sooner is set your committed repayments at a higher level so they come out directly from your account. If it’s set in stone you will get used to the fact that that is what your commitments are and it will just be a habit, rather than trying to make ad hoc "additional" payments at your own discretion.

- Ray Zahra Aussie Home Loans Carlton, Vic

Related stories from Today Tonight: Saving tips from a mortgage broker and Mortgage rate busters

Spending controls

The most important thing is to set up spending controls. Get rid of your EFTPOS card and credit cards and go back to good old-fashioned cash. Using cash to budget will let you know exactly how much you can spend. For example say you have $XX beer money, you’re at the bar buying your mates a round. Because you’re paying in cash, as soon as you look at your wallet you’ll know exactly when you’ve spent your beer money. This gives you’re a real-time indication of what you’re spending, where and when.

More from Moneyhound: How to maximise a windfall

If you are using EFTPOS make sure you’ve got no overdraft facilities set up so you know when you’ve run out of money.

Also, try splitting your spending up into discretionary spending and regular expenses. Anytime you ever see anyone’s budget they’re always obsessed with the car account or their rates, however you have no control over those costs, on the other hand you’re totally in charge of what you stick into the supermarket trolley or how many times you go to the pub. Divide your budget into danger spending, or discretionary spending and the expenses that cannot be avoided.

- Steve Robertson, Aussie Home Loans Palm Beach, QLD

Compare rates and save money across all your household bills at Moneyhound.com.au

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Mortgage reduction tactics

Buying a house is usually the biggest and most important expense you’ll ever make. As such, paying off the mortgage is a top priority for most homeowners.

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Mortgage reduction tactics

Buying a house is usually the biggest and most important expense you’ll ever make. As such, paying off the mortgage is a top priority for most homeowners.

Home Loans

Credit Cards

Saving Accounts

iPhone 4S Plans

Broadband Plans

Electricity & Gas Prices

Newsletter

Help me find a home loan

Available to

Repayment type

Rate type

Include loan type

Required features

Repayment frequency

State/territory

Help me Save

Use our home loan interest calculator

Moneyhound helps you compare 907 home loans from 118 trusted issuers

Home Loans Latest News

Compare more products and services