Most of us will enter retirement with a mortgage.
It’s not ideal but, as the average age of a first home buyer is 37.2 years, a 30-year term could mean more years remain on your home loan than you have left in the workplace.
Unless you want to be juggling a mortgage while living off a fixed income, it’s best to pick up one or more of these mortgage-busting tips.
1. Get a cheap rate and invest the savings
The difference between the cheapest and most expensive home loans can be as much as $240 a month in repayments on a $400,000 debt. Over 10 years that’s $28,800.
In this low-interest-rate environment, you may be better off refinancing to a cheaper home loan and investing your savings elsewhere.
Investors looking for income can find dividend-paying shares or funds that yield more than the cost of their mortgage.
These returns could be redirected back into your home loan.
But be aware that high returns equals high risk. If you’re unsure of this strategy, just stick to refinancing to a cheaper home loan but keep up the same repayments.
2. Use your super to pay off your home loan
If you’re about to retire – and can access your super – with, say, $100,000 still owing on your home but $300,000 in super, you can pay off your home loan and invest the remaining $200,000.
Eleanor Dartnall, from Dartnall Advisers, says cutting debt is a good way to start retirement.
“But I would always leave a small line of credit to ensure there is access to funds in an emergency.”
A plus is that lower super assets could increase your age pension payment.
3. Make good use of your offset or drawdown
Both work the same way. Popping $10,000 into an offset account linked to your mortgage could not only save you thousands in interest but it will help you pay off your loan sooner.
On a $350,000 loan over 25 years charging 5%pa interest, you’d not only shave 11 months off your term but save $23,700 in interest.
Any money in your offset account is reducing interest on your home loan but it is still available if you want it via an online transaction or ATM withdrawal.
4. Live off your credit card
Putting all our pay into a mortgage offset account is definitely the right way to go but you could save even more by using an interest-free credit card to extend the time your pay stays in the offset.
By using an interest-free card – one that offers a generous number of days – to cover your everyday expenses, your income can sit in the offset account for longer, reducing the interest you pay on your home loan.
Of course, you need discipline to ensure you don’t spend more than your budget allows on your credit card and you do pay it off during the interest-free period.
Look for a card with at least 55 days interest free, preferably with no or a very low annual fee.
5. Put your house to work
Rent out a room, add a granny flat to rent out or rent out your driveway. Any one of these three examples will increase your income so that you can make additional mortgage repayments.
Be aware that, if you do rent out a room or driveway, the income will usually be taxable. Capital gains tax may also be payable on a pro-rata basis.
6. Downsize to a less expensive home
Let’s say your home is worth $1 million and you owe $300,000 on your mortgage.
By downsizing, say, to a small townhouse worth $500,000 you could pay off your home loan and start retirement debt free.
Net proceeds could go into your super if you pass the contributions test, but take care about your pension entitlement.