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<\/p>\nPaying off more than your monthly repayment can save you thousands in the long-run. Picture: Getty<\/p>\n<\/div>\n
Imagine your mortgage<\/a> is a giant block of ice. The only way it shrinks is the slow drip, drip, drip of monthly repayments over the years. Now, envision using an ice pick to smash out a huge chunk.<\/strong><\/p>\n This is the analogy used by John Tindall, a Choice Home Loans<\/a> mortgage broker in Wattle Grove, Sydney, to explain the power of topping up a mortgage; making extra payments, either regular or piecemeal, to pay it off quicker.<\/p>\n \u201cWhere it\u2019s possible, making additional repayments reduces your debt faster, meaning you pay less interest and build your ownership of the property faster. It also builds up a \u2018buffer\u2019 of extra payments in case you miss one in the future,\u201d Tindall says.<\/p>\n Small tweaks to how a mortgage is paid \u2013 like switching from monthly to fortnightly payments or paying an extra set amount each month on top of regular payments \u2013 can make a large and lasting difference.<\/p>\n \u00a0<\/p>\n \u201cFor those with a $400,000 mortgage, over 30 years, paying 4% interest, switching from monthly to fortnightly payments effectively adds another two payments into your year, which means you\u2019d save $45,000 in interest and pay the loan off four years and one month earlier,\u201d he says.<\/p>\n Paying an extra $100 each month saves $30,000 in interest and cuts two years and eight months off the life of the loan, he adds. Even a minor, one-off payment of $500 each year can save $13,000 in interest and reduce the loan length by over a year.<\/p>\n People should think of their mortgage when they have surplus funds<\/a>, Tindall says.<\/p>\n \u201cSome people have a clear budget, with savings goals and dedicate surplus income to paying down the mortgage. Others may choose to use tax refunds, an inheritance or other windfalls to pay a chunk off the mortgage. Having set regular payments is easier and better discipline,\u201d he says.<\/p>\n \u201cIf you added $2000 at tax time each year, for example, to that $400,000 mortgage, you\u2019d save $46,000 and cut four years and three months off your loan,\u201d Tindall explains.<\/p>\n Using an online calculator is a great way to see how an additional few dollars a month can reduce the life of a loan dramatically.<\/p>\n \u201cCouple this knowledge with an active plan, such as scheduled additional repayments and you\u2019re well on the way to smashing that loan down!\u201d<\/p>\n This information is of a general nature and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.<\/strong><\/em><\/p>\n
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