According to a recent report from BIS Oxford Economics, 42 per cent of Australians between 50 and 64 are carrying a mortgage, up from 20 per cent in 1996, meaning more households will be entering retirement with a mortgage burden.
However, Steven Korner, financial planner at Omniwealth, said there are four steps all Australians can take to pay off their mortgage sooner.
1. Offset – you’re crazy not to
An offset account is a bank account that does not earn interest. Instead, it offsets the interest paid on a loan as it considers the money in the account has been paid off in the loan.
“This still gives you the freedom to use this cash if needed while paying less interest on your home loan,” he said.
“It is crazy not to have at least one of these. Every account I own is an offset account to my loan (I have five accounts). This has saved me thousands per year.”
2. Do the maths, increase income – not expenses
“This sounds simple, but it is one of the most effective ways to pay off your loan faster. Budgeting is key,” Mr Korner said
He said borrowers should think about their necessary and discretionary expenses, while also looking at ways to increase income.
“Start with the goal in mind and then work back from there. People don’t plan to fail, they fail to plan.”
Mr Korner argued the family home is a liability, not an investment, so it’s critical that home-owners invest outside of the home and think about putting extra cash towards investing and not just the home loan.
He said investments often have specific tax advantages, which coupled with growth can help pay off the mortgage much faster.
4. What’s your rate?
“You should be reviewing your home loan rates once a year. If you aren’t then you are potentially missing out on a truckload of savings,” Mr Korner said.
“One approach is to let them [your bank] know another bank has offered you a much lower rate (make sure you do your research first, of course) and ask what they can do to match the lower rate.”
Switching from a 4.3 per cent interest rate to a 3.8 per cent rate on a $1 million mortgage would mean $5,000 a year in savings. Over the life of the loan, that could be as much as $150,000.