Knowing you are chained to a mortgage for 3 decades or more can be daunting. There are ways you can mix up your strategy, however, with the reward of reducing the balance of your mortgage, as well as the time you’ll take paying it off.
Adjust your psychology - Nobody likes the idea of short-term sacrifice for long term gain but thinking about pockets of sacrifice throughout the lifetime of your mortgage can make it more digestible. Over 30 years there will be as many lean times as there will be times of prosperity. Career aspirations should be considered in line with your mortgage too – double income households that are both benefiting from pay rises as they progress professionally will be in a great position to really carve a chunk out of a mortgage by living off one salary and directing the other to the loan repayments for example. Tightening the budget for 2 to 5 years and reducing the mortgage as much as you can during that time, then relaxing into a more manageable balance, is much easier than living a restricted lifestyle for most of your life.
Tighten the purse strings - Whatever strategy you choose in terms of repayments through the lifetime of your loan, tightening your budget will always make a difference. If you don’t currently track your spending, make the change now. There are plenty of apps that will do the job, or you can use the humble spreadsheet, or even handwrite it in a notebook. Every month there will be something that can be skipped, reduced or removed altogether. Delaying things from one month to another to spread the expenses across the year will help boost your month-to-month repayments, without impacting on your lifestyle too much.
Maximise an offset account - If you don’t already have an offset account for your mortgage, you should get one! The balance of your offset account is used to calculate the interest payable on your mortgage – if you have $10,000 in your offset account and a $600,000 mortgage, then interest will be calculated against $590,000 instead. The higher the balance of your offset account, the less interest you will pay. Getting a salary paid into your offset account is a great way of increasing its balance, as is transferring savings or your buffer account balance.
Increase your mortgage repayments - Paying more off your mortgage from month to month is of course the best way to fast track paying off your mortgage, but it’s also the most challenging. If you tighten your budget and pay a big chunk of it down early on, then reduce your interest via your offset account, you’ll definitely make some progress. Finding ways to increase the money you’re actually paying across will also make a big difference. This isn’t always easy, but as mentioned previously, identifying blocks of time across the lifetime of you mortgage where you can boost your payments, such as when your salary increases or once block expenses like school fees are finished will all make incremental but rewarding differences.