How to Own Your Home Mortgage Free Sooner and Save Thousands in Interest

The mortgage-free dream is a goal most Australian households share.

However, while it's tempting to search for the latest and greatest mortgage strategy out there, sometimes going back to the basics is all that is needed.

Your mortgage, and the interest you pay, boils down to three key ingredients:

This is the amount you still owe on your mortgage. The lower the balance, the less interest you'll be charged in the daily calculations.

This is the percentage your lender charges you on the outstanding balance. A lower interest rate means lower interest charges.

This is the amount you pay towards your mortgage each month (or fortnight). Every time you make a mortgage payment, the amount gets split between the interest you owe that month and paying back part of the principal you borrowed.

There are many strategies available to help you pay off your mortgage sooner and reduce the total interest you pay, but at the heart of each are three basic principles.

This is where your offset account comes in handy. Any money in your offset reduces the amount of your loan you're charged interest on. Lump-sum payments also directly reduce the principal.

For example, say you owe $400,000 and you have $20,000 in your offset account, you will only be charged interest on $380,000.

Interest is calculated daily, so the longer you leave funds in your offset account (or in your redraw), the more it benefits you.

Keep an eye on interest rates. If rates drop, consider refinancing or renegotiating with your current lender to secure a better deal. Even a small reduction can make a big difference over the life of your loan.

A 0.5% discount from 6.0% to 5.5%, may seem like small change. But on the example balance above of $380,000 it will save you over $40,000 over 30 years.

You can also consider a wealth package that bundles up an offset account, credit card, and interest rate discount all for a yearly fee. Just make sure you are going to use the benefits and that you can save more than you pay for it.

The good thing about extra repayments is they go directly towards your principal balance, reducing the amount you owe and therefore the ongoing interest you're charged.

Extra payments have a compounding effect in your favour, especially early in the loan when most of your repayments normally go toward interest.

You can try the Fortnightly Repayment Trick or increase your repayment by any amount (even $50 a month can have a huge impact).

Unfortunately, a mortgage is more of a marathon than a sprint and it can be quite frustrating when progress is slow.

You have to be realistic, work within your budget, and over time you will see progress.

Remember, the impact of two or three months of extra repayments, a lower interest rate, or a large offset balance on a 30-year mortgage won't have much of an impact.

Because of the timeframes involved, using an app or mortgage tool to plan and lock in a realistic goal can be a great help when you can immediately see the future impact.

Seeing how much you will save (or how much your mortgage will cost you if you do nothing) can be incredibly motivating and help you stay on track.

The key is consistency. Slow and steady wins the race! Small extra payments add up over time. Make it a habit to regularly review your budget and look for opportunities to save and put more money towards your mortgage.

Try to automate the extra payments so they just happen.

Try the MoneyFormula Five Steps to Success today and discover just how easy it is to take control of your money and crush your mortgage!

Have a play with MoneyFormula's different debt repayment strategies, experiment with different scenarios and see how much you can save. Then lock in your mortgage-free date and make it happen.