Your mortgage can be paid off quicker by setting clear goals, adjusting your mindset, and regularly researching for better rates.
On a recent episode of Property Hub’s Get Invested podcast, KnowHow’s Bushy Martin was joined by finance writer, podcaster and author Serina Bird to discuss how investors can significantly cut down their 30 year mortgage repayment timeline.
The author of How To Pay Off Your Mortgage In 10 Years and The Joyful Frugalista particularly delved into the importance of prioritising spending in the early days, and using the right goal setting and mindset strategies.
Pay off your mortgage tip 1: Understand your linguistic programming
Home buyers need to understand how they function best in order to adopt the right mindset and behaviours.
“So are you the sort of person who likes to talk about saying things or hearing things or experiencing things? You might have a preference of using graphs to show where you need to be and track your progress. Or you might be the sort of person who really gravitates to sounds, so saying your goal out loud every night before bed. Now this is kind of a Napoleon Hill think and grow rich kind of strategy, because this is what he advocates for – looking at your goal, hearing it, believing it to be true. And it does something subliminally to your brain in that the next morning you go about your day and you’re sort of consciously or unconsciously looking for opportunities to save money to get to that goal,” Serina said.
“Then the third one, in addition to these two, is actually having to feel it and experience it. So it might, for instance, be going into a bank branch or looking online about how you discharge your mortgage, thinking about how it would feel when you see that zero balance and thinking who you might invite to a party to celebrate or what that party might look like. So knowing a little bit about your preference can also help then to set your psychological tools.”
Pay off your mortgage tip 2: Prioritise your mortgage over upgrades
One of the biggest mistakes new home owners make is quickly splurging on new homewares and renovations.
“They feel the need to renovate immediately and they feel they need all the best appliances, the brand new fridge and the brand new furniture. And it’s understandable, right, because they’re really excited, often particularly for first home buyers and younger first home buyers. Today, they are living at home for a lot longer than previously, so it’s a whole different trend now. They’ve been living with mum and dad for a long, long time, and by the time they get their house, they really want to make it beautiful,” Serina explained.
“But because of the way compound interest works, it’s a big snowball. The quicker you can reduce that principle, especially early on, the better. So, if you’re able to wait for a little bit, it makes a huge difference. So I guess that’s the biggest mistake – having too big of a mortgage to start with and then spending more on things to make the house look good too quickly.”
Pay off your mortgage tip 3: Avoid the loyalty tax
Investors often fall trap to ‘staying loyal’ to their lender and not regularly reviewing and considering their options.
“Australians can pay billions of dollars every year on their loyalty tax, and it’s particularly important when it comes to mortgages because often banks or other lenders will offer these fabulous rates to new customers. So it’s not just the honeymoon rates, because often there’s honeymoon rates for the first six or 12 months, it’s more that they pay fabulous rates but then they’ll start to not pass on if their interest rate cuts or they’ll pass them on too much when the interest rates go up over time. So after a couple of years, you’ll find that they’re not so competitive, and people are too scared to do anything about this because it’s really sort of scary and it’s daunting and they just sort of go, oh well, it was the best at the time,” Serina said.
“But we also get busy and don’t have time to shop around and see if there’s a better deal and consider the costs involved in switching mortgages. But when I calculate the savings, I’m like, hell yea I’m going to change. Or, you can just call up your lender and just ask, am I on the best deal? And if not, why not? I thought I was pretty pushy because I sort of do this every six to 12 months or so, but I met someone recently who does it every single month, and he’s actually banking with one of the big four and he’s got a great right. And so you don’t have to be rude about it, you just have to be persistent and know that the way mortgages are structured is the new entrants are getting a better deal than you, and you’re not being rewarded for your loyalty.”
Bushy added: “one thing I can suggest to anyone listening is it doesn’t take long to jump online and find out what a current cheap rate is. If you just go to your existing lender with that and say, what are you prepared to do to match it? Otherwise you’re going to lose me. You’ll be amazed at what most lenders are prepared to do”.
Listen to the full interview here.
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