Here are some ways to overpay your mortgage regularly in order to get ahead and pay down your home loan faster.
While most tips focus on how to pay off your mortgage, this is less about that and more so geared towards some tricky ways you can overpay each week, fortnight or month to slowly make a dent in your mortgage.
Deposit lump sums onto your mortgage to get ahead
If you receive a bonus, inheritance or windfall of money, opt to invest it into your mortgage to reduce the amount you owe. This is like a huge overpayment on your mortgage and has tangible results straight away. It saves you interest and helps you pay off more principal immediately.
For the risk averse, there isn’t much better than saving money on interest – as it comes with next to no risk and has immediate benefits to your wallet (without chasing returns in the share market and what not).
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Set a goal to be 5 mortgage payments ahead
Calculate the cost of five mortgage payments as of this second, add them together and divide it by 26 (fortnights in a year). Add this amount as a mortgage overpayment each fortnight to get yourself five payments ahead by end of year.
So for instance, say each fortnightly mortgage payment you make is $1000. Five mortgage repayments would be $5,000 and once you divided that by 26 fortnights, you get the sum of around $193. Add this extra $193 to your fortnightly payment of $1,000 taking it to $1,193 to get yourself ahead by five repayments by the end of the year.
This will bring you security and peace of mind knowing that you have some extra overpayments waiting on standby.
Opt for a mortgage over less years
Shorter loan periods means paying less interest. The longer you have a loan, the more interest you will pay. If you have the cash flow to meet repayments on a mortgage over 20 years, opt for that instead of 30 years.
This works as a form of overpayment in that you are making bigger repayments from the moment go rather than accepting an extra 10 years or similar on your mortgage.
Set your direct debit slightly higher
Most mortgages allow you to decide the minimum repayment amount you will pay. Always set the repayment amount slightly higher so that when the bank direct debits your account, it takes a little more.
I have been doing this for years and its a great way to round up your repayments and get a good stash of mortgage overpayments accruing.
When rates drop, keep the repayment the same
I have preached this one many times. If the RBA lowers interest rates when they meet each month and in turn your mortgage provider lowers your rates – don’t let them change your minimum repayment to the new amount.
Instead opt to keep overpaying the mortgage with the old rate. You were doing fine before while paying the original rate so why not keep it up?
Get paid directly into your mortgage
See if your home loan allows direct payments from salaries. If this is the case, set a pre-determined extra overpayment to go towards the mortgage each pay period at work.
Some employers will deposit your money via pre-determined splits into savings accounts, loans and credit cards. A great way to pay off debt, save money or make mortgage overpayments if your payroll allows it.
Setup an automatic extra overpayment from your everyday account
Use internet banking with your everyday account to set a small overpayment to be debited out of your account every week.
It may be as trivial as $10 per week but will dramatically help reduce your mortgage while over time adding up to substantially reduce the interest you pay. A set and forget type strategy for getting small but powerful deposits into your mortgage account.
Keep your money on your mortgage
Most mortgages charge interest on a daily basis. As a result, the more money you can have stored on your mortgage, the less you pay in interest.
This means you should always attempt to store excess savings and loose cash on your mortgage as it saves money over the long run. Doing this not only reduces interest, it means your subsequent repayments will pay down more principle than they originally would have – a double whammy if you will that helps to overpay and reduce your mortgage.
What are some other tricks to overpay your mortgage?
Share in the comments below how it is you overpay your mortgage and if you have any other sneaky ways to get yourself ahead of the repayment schedule.