For some, turning 50 can be a mental milestone as much as it is an age milestone. Using a golf game analogy, the question for many is this… what can I do differently when playing the back 9 to what I did in the first 9 holes to win at the game of money?
The number of Aussies still paying off their home after they retire has risen from 14% of older mortgagees (aged 55+) in 1987 to almost 28% in 2015 – a 100% increase over the last three decades. Furthermore, the average mortgage debt owned on their home has risen from ~$27k to ~$186k – a 588% increase (source: The Australian Housing and Urban Research Institute).
During your working life, it’s so easy to get trapped into more and more debt as money is regularly flowing in from your paying job or business. Many forget that cash flowing in has an expiry date and is not in perpetuity – unless of course you were aggressive with your investments and created an asset base that generates cash in your sleep.
If you are over 50 and carrying a mortgage on your family home, there are a number of steps you can take right now to ensure you’re not one of the statistics of taking home loan debt into retirement.
Here are my 7 tips that can help you pay off your home loan sooner as you approach retirement:
- Shop around for a sharper home loan as a lower interest rate will result in less interest paid, with more of the repayment amount directed towards paying off your principal
- Once you’ve refinanced, increase your new repayments back to the amount you were paying previously, as this will ensure you are paying off your home loan sooner by making accelerated repayments
- If you are making interest only repayments, change to principal and interest immediately. IO home loans are a trap – eventually the debt must be paid off. A P&I home loan forces you to chip away at the principal amount borrowed, and not just the interest as charged by the bank. P&I repayments include both principal and interest components – amortised over the loan term
- Set up an offset account, which can be a very powerful mortgage strategy. With an offset home loan, interest is calculated daily on the ‘net’ amount owing (i.e. outstanding loan balance net of offset cash). For every dollar sitting in your offset account, you save interest on your home loan with the related amount coming off the outstanding loan balance
- Take stock of your current cash outflows by reviewing your day-to-day bank accounts and/or credit card statements – go back and review the last 12 months. Do you see any transactions which you are paying for but you aren’t really making use of? (e.g. are you making use of that gym membership?). Stop any direct debits which you don’t use or no longer need – and increase your home loan repayments by the exact same amount
- List your top 8 household expenses and set a strict budget which you need to stick to. Any cash flow you can free up should be immediately diverted towards your home loan repayments so that you are making accelerated repayments on your home loan. The most effective way to achieve this is to increase your home loan repayments so that they are automatically made without you having to action it – this way you avoid excuses as they come up
- If your cash flow is tight and you cannot afford higher home loan repayments, change your repayments to fortnightly, rather than monthly. When making fortnightly repayments, you are effectively making an extra two weeks repayments – per annum. The more money that is paid into your home loan and the sooner, the less interest you pay, resulting in more principal paid off
Mario is professionally qualified as an MBA, a qualified Accountant, and a Finance Strategist with over 30 years experience in financial services. Mario has personally built a multi-million dollar property portfolio and is an active and passionate property investor and developer. Mario has been acknowledged by the mortgage industry with multiple awards.