Paying off your mortgage is one of the most exciting yet challenging financial goals you might achieve. And what if we told you there was another approach to paying it off rather than succumbing to the bank’s typical 30-year period?
We asked the team at enable.me to share everything they know about paying off your mortgage faster than you thought possible and why doing so can be one of the most rewarding financial decisions you will make.
In their eBook, Master your mortgage, maximise your opportunities, they outlined what you should consider in order to get mortgage-free faster and why a strategic approach is so important.
Haven’t read the eBook yet? You can download it here.
Why is it important you take a strategic approach to paying off your mortgage faster?
When taking out a home loan, most Kiwis will default to a 30-year term – and it’s easy to understand why. This is the longest term available, the default used for calculating your ability to service the loan, and will give you the lowest repayments possible (depending on interest rates available).
The upside of a 30-year term is that it enables more people to get into a home as the repayments tend to be lower and lower repayments make a mortgage more affordable. At least in the short term.
The downside, however, is that over those 30 years, your mortgage could end up costing you over twice the amount you originally borrowed. Regardless of the size of your mortgage, anything over a 5.4% interest rate will see you paying back over twice as much as what you initially borrowed*.
Is there another way?
If that sounds like a high price to pay for owning your own home, you may be wondering what the alternatives are. While mortgage rates can change, sometimes giving you a more favourable rate and costing you a little less, hunting for the lowest interest alone to reduce the cost of your mortgage does very little.
It’s also a risky approach and provides no guarantees of success. You’re at the behest of the vagaries of the market and whims of the banks to determine how much you owe the bank at every repayment and just what the impact will be on your financial situation.
While interest rates are expected to go down from where they are now, they’re just as likely to go back up again thanks to the natural cycle of the housing markets.
Another option could be to pay a lump sum into your mortgage when it’s due to refix, thereby reducing the principal amount of your mortgage and lowering the amount of interest you’ll have to pay even if rates go up.
But these types of tactical moves tend to be short-term and don’t build any flexibility into your repayment plan – if you get into a financial situation where your income no longer covers your mortgage repayments, this could mean dipping into your savings to cover the costs of your repayments or having to pause them altogether – all of which can have a negative impact on long term financial outcomes.
So, if you want to reduce the length of your mortgage term, the amount you end up paying, and protect your future financial stability – you need to take a more strategic approach to how you’re paying it off.
What does this look like?
A strategic approach to your mortgage takes your long-term goals and overall financial position into account when considering your mortgage. It considers how you’re paying it down and how quickly – all without losing your ability to access your money when you need it or locking yourself into high repayments.
At the heart of it, a strategic approach puts you in charge of how much you’re paying back to the bank, when, and for how long – rather than the other way around.
Tactical moves like finding the lowest interest rates and mortgage structures will still have a part to play – but these aren’t the key focus of the repayment plan. Rather, it’s about understanding how much surplus cash you have available, how you can use that to reduce the principal portion of your mortgage, and thereby reduce your interest repayments and mortgage term.
That sounds like a lot of work
Yes – but that’s where a financial coach can help. A coach can help you determine your financial goals and how paying your mortgage off faster can help you achieve them. They can help you get a better grasp of your financial position and just how much cash surplus you have. They can advise you on tactics for optimising your loan. And they can develop a personalised financial plan for paying off your mortgage faster – supporting you and keeping you on track.
And is it worth it?
The obvious benefit of taking a strategic approach to your mortgage is the interest you save over the life of your mortgage and the reduction of your mortgage term. More money for you, less for the bank. But what do we think makes getting mortgage-free truly worthwhile? The options it unlocks for how you live your life, grow your wealth, and achieve your financial goals. It’s these bigger ambitions that most of us write off because of that great big mortgage-sized elephant in the room, that makes taking a strategic approach truly worth it for you, and for our coaches. Let’s take that step together.
If you’re keen to get a better understanding of how you could pay off your mortgage faster and the bigger goals that might unlock for you, book a consultation with an enable.me coach today.
*Calculated using the Sorted Mortgage calculator
** Based on a $600,000 mortgage, Using the Sorted Mortgage Calculator
Disclaimer: This blog is for informational purposes only and does not constitute individual financial advice.