How to Pay Down Your Mortgage Faster: Why More Australian Homeowners Are Tackling Debt Head-On

To save or to pay down your home loan. It is not exactly Shakespeare, but it is a genuine dilemma for many Australian families right now.

Plenty of homeowners have decided they are done waiting for interest rate cuts and are taking matters into their own hands. The focus has shifted to shrinking the mortgage balance and taking back a bit of control.

A recent survey by Agile Market Intelligence found that 69% of homeowners, the highest share this year, now see getting ahead on their home loan as their top money priority.

Let’s look at why and what learning how to reduce your mortgage quickly means for you.

Interest rate

If you are looking at how to reduce your mortgage quickly, it helps to understand how interest works on your home loan. For most people, the interest rate on a home loan is higher than the rate earned on a standard savings account.

That is not exactly a shock. Charging interest on loans is one of the main ways banks make their money.

Because of that gap, every dollar you use to cut your loan balance usually saves you more in home loan interest than you could earn in a cash savings account.

Start sooner, and the effect snowballs. The earlier you direct extra money into your home loan, the more interest you can avoid over time and the sooner you can become mortgage-free.

Here is why. Every extra repayment goes straight off the loan principal. That means the next month’s interest charge is calculated on a slightly smaller balance.

Your regular repayments do not change, so a bigger slice of each one starts working to reduce the debt rather than just paying interest.

Over time, the pendulum swings in your favour. Bit by bit, more of every repayment chips away at the balance, and less is lost to interest. That is when you really feel like you are making progress.

How to reduce your mortgage quickly and build equity at the same time

As you reduce the amount owing, your home equity usually increases, provided your property value does not fall.

Higher equity can open doors. With more equity behind you, you may:

• Qualify to refinance to a loan with a sharper rate, which can drive even more savings, or
• Tap into that equity to help you achieve other goals, such as investing in a rental property.

So learning how to pay down your mortgage faster is not just about the feel-good factor of seeing the balance drop. It can also expand your options and give you more flexibility in the future.

The best strategies to reduce your mortgage quickly when money is tight

High living costs mean many homeowners have little spare cash, but you are not locked into your current loan timetable.

It is still possible to pay your mortgage off sooner and trim your interest bill, even if your budget feels tight. Here are some practical ideas.

1. Pay more often

Switching from monthly to half-monthly repayments made every fortnight can be a simple way to get ahead.

Because there are 26 fortnights in a year, you effectively pay the equivalent of 13 monthly repayments rather than 12. That extra month’s worth of repayments goes straight into reducing your loan balance.

For many people, lining up fortnightly repayments with payday also helps keep cash flow smooth and predictable.

2. Add lump sums

Lump sum payments are one of the best strategies to reduce your mortgage quickly.

Instead of treating your tax refund, end-of-year bonus, or other unexpected windfalls as spending money, consider dropping them into your home loan. You are unlikely to miss funds that never really made it into your day-to-day budget, and your future self benefits from lower interest costs.

3. Consider an offset account

An offset account lets you put any spare cash to work against your home loan. 

The balance in your linked offset is taken off your loan when interest is calculated, which lowers the interest bill, so more of each repayment reduces the actual debt.

4. Check the rate you are paying

You can be doing everything right and still feel like you are running uphill if your interest rate is higher than it needs to be.

For context, the Reserve Bank has reported an average variable home loan rate of around 5.5%. At the same time, comparison sites such as Mozo show plenty of lenders offering lower advertised rates.

This gap is why it pays not to assume your current rate is competitive. The only way to know for sure is to check.

How Osinski Finance can show you how to pay down your mortgage faster

Whether you took out a 25- or 30-year mortgage, you do not have to keep it for the full term. With the right structure and strategy, you can learn how to pay down your mortgage faster. You can work towards becoming mortgage-free sooner and free up money for savings, travel, or investing in a property.

If that is your goal, Osinski Finance can review your home loan, explore refinancing options, and help you set up a clear plan to get ahead on repayments and reduce your interest costs. Contact us today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.