How to Pay Off Mortgage Faster: 12 Best Ways to Do It

Wondering about how to pay off mortgage faster? At one point, getting a mortgage to own a home might seem like an amazing idea. In fact, it is, but many mortgage holders start to struggle down the years. 

This often happens due to poor financial management, low income, high debt-to-income ratio, etc. It’s when you feel the mortgage payments weighing down on you that you start thinking about closing it off sooner.

Even if you don’t feel the burden, paying off your mortgage sooner is a good thing to think about since it makes you debt-free (unless you have any other loans). But mortgage is typically the biggest liability among all, which makes the need to pay it off the higher priority.

As a mortgage broker, we know some excellent tips. Keep reading for 12 actionable and useful tips to pay off your mortgage faster.

Benefits of Paying off Your Mortgage Faster

Trying to fully settle your mortgage sooner is not just for the sake of getting debt-free; it rewards you with many more benefits.

• Financial Savings: Pay less interest over time. Ultimately, paying it off completely means you’ll have the freedom to save that money instead.

• Emotional Benefits: Owning your home outright provides a strong sense of security, leading to reduced stress and anxiety.

• Increased Equity: You’ll truly own more of your home (your equity in the home) as the total mortgage balance comes down.

• Freedom to Invest or Retire Early: You can use the money you save on interest to make investments or even save up to retire early.

The ultimate goal is to always become debt-free by paying off your mortgage faster. And these are all the benefits you get by doing so.

The financial and emotional benefits are of significant importance here. It truly helps you stay sane and gives you the freedom to shape a sound future for yourself—all of it without having to struggle yourself month to month.

The 12 Best Ways to Pay Off Your Mortgage Faster

As one of the best mortgage brokers in Australia, we have a front-row view of how people manage their mortgage payments.

So, these are the 12 best ways you can adopt to start paying off your mortgage faster.

And if you’re looking for support with your mortgage, we’re here to help. With over 30 top lending partners, we can guide you through the process from start to finish to find the right mortgage solution that fits your needs.

Contact us today to unlock your personalised offers for FREE!

1. Avoid Interest-Only loans

First things first. 

If you’re only about to take a new mortgage and have the financial capacity, never opt for interest-only repayments. This type of repayment requires you to pay only the interest every month.

Paying your interest alone means you’ll still owe the same mortgage amount you originally borrowed, even if you’ve been making repayments for months or years.

Consult with your lender to verify what your monthly interests are, and ask them to change the required repayment amount to include both interest and principal if it’s not already set up that way.

2. Settle All Your Consumer Debt

Consumer debts can easily leech into your finances because they’re easy to access. That’s why the common advice is to always be extremely careful when dealing with consumer debt.

It’s a hindrance to your mortgage as well. If possible, pay off all your consumer debt completely before taking out a new mortgage. If you already have a mortgage, settle your other debts as soon as possible.

Once settled, you’ll have more disposable income that you can use to pay extra towards the mortgage, which you otherwise would have spent on your consumer loans.

3. Make Extra Payments

If you have the financial capacity to make extra payments each month, do it by all means. Because this is a great way to not only pay off your mortgage faster but also save some money on it too.

But make sure it doesn’t affect other aspects of your life, such as basic needs, savings, emergency funds, etc.

When making extra payments, ensure you inform your lender to apply the extra funds to the principal amount, not the interest. 

Otherwise, your lender might just apply your extra funds to future monthly interest payments. While it does help you pay off the mortgage earlier, it won’t save you any money on the interest in the long run.

4. Use Your Unexpected Funds Wisely

It’s possible you might get bonuses, tax refunds, or unexpected cash at least every year. If these extra funds are disposable, use them as extra payments towards your mortgage.

It’s easy to use these lump sums on consumer items or luxury, so make sure you have your priorities straight before spending them on your impulse. 

5. Use Side Income

Are you able to generate some extra income through side hustles, freelancing, or rentals? You can use the extra income from these extra sources to pay more towards your mortgage.

Keep in mind that extra income sources are not worth it if they come at the expense of your mental health. Only push hard if you deem it that necessary. 

6. Round Up Your Payments

Next time you calculate your monthly budget, round up your mortgage payment to the nearest hundred or thousand.

For instance, if your monthly repayment amount is $3,850, round it up to $3,900 (the nearest hundred) or even $4,000 (the nearest thousand).

It’s a small amount of extra money every month that you would otherwise spend unnecessarily. But it will add up to a significant value over time, helping you pay off your mortgage faster.

7. Use an Offset Account

An offset account is a type of savings or transaction account linked to your mortgage. Conveniently, the amount in your offset account helps reduce the amount you pay on your home loan.

The offset account balance is calculated against your mortgage balance, making the interest only applicable to the final difference. 

Here’s an example:

If you have a $500,000 mortgage, which is linked to an offset account with $50,000 in balance, the interest on your mortgage is only applicable to $450,000 ($500,000 - $50,000).

This means you pay less interest overall, saving you money in the long run, which ultimately helps you settle the mortgage sooner.

8. Cut Back on Unnecessary Expenses

A good rule of thumb is to use your disposable income for basic necessities and avoid luxuries like dining out, going on holidays, buying luxury items, etc.

If paying off your mortgage faster is your top priority, know what your basic needs are for a month and cut out anything that you can live without. 

Luxuries, subscription services, and impulse purchases can easily eat into your finances if you don’t know your limits.

You can use these savings to close off more of your mortgage instead. But again, this is another instance where you should clearly know what your priorities are.

9. Shorten Your Loan Term

If you have a good financial standing, you can ask your lender to shorten the loan term. You can switch to a 15-year term from a 30-year, or however your finances let you.

However, keep in mind that this means higher monthly repayments that could potentially put you under mortgage stress. The shorter the loan term gets, the higher your repayments will be.

10. Refinance for a Lower Rate

In case you’re completely out of luck on generating or paying extra money to your mortgage, your best bet would be to use a refinance broker to refinance for a lower interest rate.

This is a great opportunity since it helps you pay off the mortgage faster while also helping you save some money on it. 

11. Avoid Mortgage Holidays

Lenders offer repayment holidays to help in times of life’s struggles. If you have a valid reason, like losing your job or an unexpected medical emergency, you can request a repayment holiday ranging from 1 to 12 months.

During this period, you won’t have to make any repayments. However, to compensate for the postponed payments, you’ll either have to pay extra when the repayments resume or extend the loan term to make up for the months postponed.

While it does make you feel secure, try to avoid it if paying off your mortgage faster is the top priority.

Gradually build up an emergency mortgage fund for 3-6 months, or even 3-12 months, depending on your financial standing. So, in case you are met with life’s uncertainties, you’ll still be on track to pay off the mortgage faster with this emergency fund in place.

12. Sell Your House

Consider this your last resort. Downsize by selling your house for a profit and buying a smaller house instead. 

Even if it means you need another mortgage, it would be way less than the current one. And you can pay most of it upfront as a deposit with profit from the sale.

Common Mistakes to Avoid When Paying Off Your Mortgage Faster

The idea of becoming debt-free by paying off your mortgage faster is tempting. But as much as it is, there are also downsides that can happen if you’re not careful with how you manage money for extra repayments.

If repaying with extra funds is your way to pay off the mortgage faster, then take these common mistakes into account before you do so.

Overextending Finances and Risking Liquidity

Paying more money towards your mortgage is a good practice. However, it’s important to be mindful of what you risk by pledging that extra amount. 

Always know your limits. Only pay the leftover disposable income that remains after covering all your necessary expenses—your basic needs, most importantly.

Ignoring Prepayment Penalties

It’s easy to overlook the terms and conditions of your mortgage loan. So, make sure there are no prepayment penalties on your mortgage.

Otherwise, you’d have to pay hefty amounts as a penalty for each extra repayment. Since it gets cut automatically from your bank account or your repayments, you might not even notice how much you’re wasting on penalties.

Consult with your lender to see if prepayment penalties apply to your mortgage. If they do, check with them for any threshold of prepayment amount or a no-prepayment period.

Neglecting Other Financial Goals 

When using extra money to pay off your mortgage faster, make sure it doesn’t affect your other financial goals, such as retirement or emergency savings.

If you don’t already have such goals, we highly suggest you make one. And only pay extra to mortgage with the leftover funds you have after investing for your other financial goals.

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