How To Reduce Your Mortgage

The majority of Australians don’t have a money plan in place and are not making well informed and educated decisions about the ways in which they are funnelling their money.

When you see extra money in your bank account, what do you do with it? When we see more money, we usually spend more and most often we buy things we forget about within a couple of weeks. The way that many Australians have their money organised is within a plethora of bank accounts, or ‘buckets’ as banks are calling them these days. Generally, these accounts have high fees, they don’t reduce interest rates on mortgages or save us any money.

Redraw and offset accounts are one of the banks best kept secrets and here’s why. If you were to funnel your income into your mortgage account (all loans come with a BSB and account number), and withdraw the money you need to live week to week, the time it takes to pay off your mortgage can be halved, with next to no effect on your lifestyle.

How? Here's an example.

John and Sharron have a $350k loan with a 4.4% interest rate on a 30 year term. They are currently paying $1,752 a month on their loan. After figuring out exactly how much money they spend on their lifestyle per week, including everything from groceries, to bills, to entertainment, they have come to realise that they can easily afford to pay an extra $1000 towards their mortgage each month. In updating their monthly mortgage repayments to $2,752, they have cut their loan term by 50%, clearing their mortgage in 15 years and paying $482,463 rather than $630,958. That’s a $148,495 saving. The chart below is a depiction of John and Sharron's financial situation.

Most of us would say that we definitely don’t have an extra $1000 a month to put towards the mortgage. It comes down to $250 a week, and split between a couple, that's $125 a week per person. If you get very clear on what it costs to live the life that you do, there is a high chance that you can save that extra pocket money and get your mortgage paid off 50% faster than you currently are.

If you would like further information on how to organise your finances, don’t hesitate to get it touch.

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