It’s the goal of every homeowner in Australia – to see the magical amount owing on your mortgage reduced to zero. Yet, while it’s something less than a third of us can claim, there are ways to transform this wishful thinking into reality.
Victorian mother-of-two, Megan, a writer, and her husband, a self-employed window film installer, recently achieved this major financial milestone at the age of 35 – 13 years after the purchase of their first home.
Here, Megan shares her tips on how you too can make this happen.
Hit it hard and fast with surplus income
“We hit our mortgage as hard, as soon and as often as we could,” Megan explains. “We paid extra on our mortgage every week and, when one of us got a pay rise, some of that money would go on the mortgage each week.”
This tactic also meant any extra cash, such as work bonuses, overtime or tax refunds, was also directed towards the mortgage, along with any surplus cash which wasn’t required for paying bills.
“Those lump sums helped us see the rewards for focusing on the mortgage: we got excited when we saw the balance come down, and the more we did that, the faster those extra payments we were making had an impact,” Megan says.
Some lenders do not allow you to make extra repayments while on a fixed rate – or limit the amount you can make in repayments each year. If you’re on a variable rate, there is usually no limit to the extra repayments you can make. Chat to UNO about which lenders might be best for you and your circumstances and play around with UNO’s repayment calculator to see how much faster you can pay down your loan by upping your repayment amount.
Give yourself an incentive
It’s human nature to reward ourselves for a job well done. For Megan, this was the same scenario whenever she hit a repayment target on her mortgage.
“We rewarded ourselves when the mortgage balance reached various points. For example, we’d go out to a fancy restaurant when it reached a certain balance, or we’d put some of the money towards a holiday when we reached the next balance goal,” she says.
*Many people wonder if they’ll ever be able to afford a holiday again once they take out a mortgage. In fact, a great trick is actually to save up for a holiday by making extra repayments on your home loan. If your home loan has a redraw facility, you can build up a balance over time of, say $10,000, by making $10,000 worth of early repayments onto your home loan. This means less interest is charged to your home loan during this time.
When you want to go on holiday, you redraw the $10,000 and you have still benefited from the reduced interest charges while that money has been in the home loan account. Chat to UNO about which lenders offer redraw facilities as part of their loan packages. *
Protect your family’s future
Being mortgage-free was a big goal for Megan and her husband. As children, they had both experienced first-hand the stress money can cause and it was important to avoid this and actively work towards being mortgage-free from a young age.
“I’d seen people in my family go through enormous financial stress and lose their homes when financial crises and recessions hit,” reveals Megan.
“That made me determined to pay off my own home as soon as possible, so that no one could ever take it from me. My husband had always got the message from his parents that paying off the mortgage is the number one priority for a couple. So, together we had our eyes on the goal and nothing could stop us.”
While the sound of a 30-year mortgage might make some people feel physically ill, most lenders allow homebuyers 30 years to pay off their loan as it minimises your obligation and provides you with some leeway should your financial situation worsen. You can still complete your repayments ahead of the due date and end the term sooner – but you’re doing this on your terms, rather than the lender’s. Uno works with a range of lenders, including one that offers 40-year loan terms for people who might need to stretch their mortgage out for a few years, until they get their financial situation back on track. Chat to UNO about your options.
Make smart decisions, not sacrifices
The good news is it won’t always feel like you are missing out on something just so you can pay down the mortgage faster – you just need to make smart decisions to best suit your goals.
“We were happy to live a comfortable but not extravagant lifestyle to avoid financial stress in the future.”
The ultimate pay-off, when you are mortgage-free
“We still get a buzz when we look around our property and think, ‘We own this!’,” Megan enthuses. “It’s incredible to know that it’s ours, and we’ll have security no matter what happens to the housing market.
“It’s also meant we have some freedom with our financial decisions. We’ve both been able to have time staying home with our kids and go on some fun family holidays. And we’ve been able to make career changes that have meant pay cuts and unstable pay, based on the lifestyle we want and the jobs we’ve always wanted to do, without worrying about whether we can pay the mortgage while doing it.”
In the same situation? Here’s some sage words of advice from Megan
“There’s always something more interesting to spend your money on,” she says. “You have to make the mortgage the priority and be prepared to stick with it. You also have to be on the same page as your partner, so you can keep each other on track – and remind each other about sticking to your goal when one of you is tempted to splash money around on something else!”
Want to fast-track your journey to becoming mortgage-free like Megan? UNO research found that, despite the majority of mortgage holders thinking rates have hit the lowest they’ll be for a year, 2 out of 5 don’t know their interest rate and may be paying too much. With interest rates sitting at record lows, it’s an optimal time to review what you’re paying and shop around for a better deal.