by Paul McBeth
As promised in an earlier article on mortgage reduction, here are some tricks of the trade for paying back your mortgage faster. These assume that you haven't done such a perfect job of budgeting that you've no spare cash and also that your loan is flexible enough to play around with.
We showed last time that you can make huge savings by shortening your loan term and by lifting your repayments even a small amount. Other ideas for some spring pruning are:
Pay back your mortgage fortnightly, or even weekly, instead of monthly. While this won't save you a fortune, your paycheck is much better off reducing your loan than sitting in a bank account.
Better still, pay back half your old monthly repayment each fortnight. The theory behind this one is that you won't notice you're actually paying back more over the year (26 fortnightly repayments add up to 13, rather than 12, repayments of the old monthly amount).
Take a $200,000 table loan with a floating rate of 6.5 per cent over 15 years. Repaying that monthly means repayments of $1,742.21 and a total interest bill of $113,597.80.
However, repay half that amount fortnightly ($871.11) and you'll chop nearly $16,000 off the total interest bill and an impressive year and ten months off the term.
Pay back at the old rate. When interest rates are falling, ignore any reductions to your floating mortgage rate and pay back at the old level. When rates are rising, as now, figure that you'll have to come up with higher repayments before long anyway so try paying back more ahead of time.
When you're taking out a new mortgage, pay any fees or insurance up-front and avoid adding them to the loan, or you'll just end up paying interest on them.
Finally, use the online calculators provided by many mortgage lenders or ask them to work out the impact of some different scenarios if you still need convincing.