We’ve said it before and we’ll say it again. There is no magical way for you to instantly Mutilate your Mortgage and have it disappear. The single, most direct and efficient way to kill a mortgage is to pay more towards it regularly.
Get your repayment amount and double it. Then triple it. Then quadruple it. You still won’t be paying it off in a year, but it’ll be gone well within 5-10 years which is usually considered “a dream” for most home owners.
Maybe you don’t have the financial capacity to slam 4x the repayment amount each fortnight into your loan and that’s fine. While I stepped up the bar long ago and continue to encourage all readers to aim for 70% of their after tax income to be going towards their mortgage, it’s understandable not all can do this.
However do realise that even $200 a week extra can tear that home loan term in half! Almost everyone can find $200 a week I’d imagine. Sure, it might entail getting rid of a luxury here or there but to save yourself 15 years of mortgage payments? That’s a no-brainer to me!
Your Loyalty To The Bank
Today though I want to do a bit of an update at least for our Australian readers with regards to interest rates. You should be doing this roughly every year or so anyway but just in case you’ve forgotten, this can be your reminder.
Currently if you’re with one of the Big 4 Banks and have a mortgage of say, $350,000, you’re likely on an interest rate of about 2.9%-3.8%. NAB is doing its Base Variable Rate loan for 2.84% if you’re an owner occupier and have a LVR of over 80%. CommBank is as low as 2.79% on their Extra Home Loan product so they’re not too terrible however they also have much higher rates if you’re not careful.
Maybe you’re on the CommBank Standard Variable Rate which is 3.85% and also has a $395 annual Wealth Package fee! Or perhaps you’re with NAB’s Choice Package and paying out an equally as bad 3.67%!
Either way, if you’re being loyal to these big banks for some specific reason it might be time to reconsider. UBank is offering rates right now at 2.58% providing you have an LVR <80%. This is with unlimited redraw (so basically the same as an Offset Account), no ongoing fees or application fees.
There are many other online only or non-big 4 banks out there also offering great rates that are just flat out cheaper. ING has their Orange Advantage loan again with Redraw facility for 2.83%. To be clear I’m not advising you to go with any of these specific offers.
This is not financial advice!
You should consult a financial adviser and have them help you decide exactly what is best for you in your specific situation. You could also go through a mortgage broker service like Uno. However my point is that simply being loyal and blindly continuing on with having a home load at a Big 4 Bank is more than likely costing your thousands of dollars in wasted money a year. So you should review your loan and do what’s best for you.
The Best Types Of Home Loans
Over the years of paying off our mortgage I went through a huge amount of websites, T&C’s as well as experimentation to try and figure out what worked best. Boiling it all down to a quick and dirty catch phrase though: The simpler, the better.
We didn’t need fancy included credit cards that got you Frequent Flyer points or “Wealth Packages” that came with hundreds of dollars of fees every year (and month!). No. We needed a few, key things:
- The absolute lowest interest rate they could muster
- No limits on extra repayments or payoff times
- Redraw facilities just in case we needed money for emergencies
- No fees, period, $0
That was it. We didn’t have any loyalties to any specific bank. For a few years now leaving and signing up to most home loans will cost you $0. This was forced upon the banking industry as it encourages competition and it has worked very well.
If we saw a different bank that was offering a lower interest rate, we switched to them. Granted we didn’t do this every five seconds, but we no doubt did it far more often than most. Another useful trick is to just simply threaten your current bank that you’ll leave if they don’t lower their rate. Usually they’ll match the competitors rate on the spot if you negotiate right.
Save Yourselves Thousands
So hopefully this is a wake up call to those who are currently on a home loan that has an interest rate with a 3 in front of it. Your rate should be much lower right now!
At 3% p.a. on that same $350,000 loan, you could save $1,435 a year on interest by switching to that UBank loan at 2.59%. That’s $27 per week, so if you do that and somehow cut a further $173 per week of expenses you’ll be able to slash your mortgage loan term to 15 years. If you’re on that CommBank Standard Variable Rate (3.85%) we’re talking a saving of $4,410 each year or $85 per week!
The banks – any of them not just the big four – certainly don’t deserve your loyalty. Home loans are a commodity and should be treated exactly as such. You don’t go and buy super fancy salt or flour that costs you tons more each year whilst providing you exactly the same product. No, you buy a bog standard no-frills brand for as cheap as they can possibly make it.
So in between binge watching shows or checking the fridge again for the 12th time today, make sure you do your yearly mortgage checkup right now. As now isn’t the time for slacking off, now’s the time for Maximum Discipline!
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).