Housing and mortgage related costs are the single biggest cost to many Australian households. Housing is also one of those huge decisions in life that can greatly affect your ability to reach financial independence early. If you haven’t already bought a home I’m going to post a few articles later detailing my opinions on buying vs renting as well as how we decided how much to pay for the our house in the future.
With that being said, if you are a home owner looking increase your savings rate and chop down your mortgage faster here’s some of the things that I can recommend to help pay down your mortgage fast.
Avoid/postpone renovations and upgrades
Australians love to renovate their homes and it costs them big dollars. Unless you’re living in a derelict property that is causing you health problems then there’s no need to do this. Renovating is just another way to keep up with the Jones’s, which is the total opposite of what this financial independence movement is about. Avoiding renovations and upgrades is the easiest way to save tens of thousands of dollars per year. Don’t be suckered into people telling you that it’ll add value to your biggest asset, most of the time your house doesn’t generate income so its value does not help you reach financial independence. Further to this you should be shooting for big portfolio equity, not big home equity.
Re-negotiate your interest rate
The banks like it when people sign up for mortgages and don’t shop around after that. If you expect to have your mortgage for an extended period of time then getting the best rate will save you big dollars in the long run, for example on a $400,000 loan a 0.5% reduction in interest rate will save you $2000 in the first year alone. Something to consider though is that the exit fees will sting you up front so make sure you do that math to see if it works out better for you in the long run.
In-source maintenance activities
If you have lawn, mowing it yourself will save you $50 fortnight. It also gives you the added benefit of getting your body moving and I love incidental exercise. I spent about $1000 on a fancy electric lawn mower and line trimmer and it’s paid essentially paid for itself multiple times over during the few years that I’ve had it. There are also a whole host of simple maintenance tasks that you can do yourself from changing taps to cleaning gutters.
Get solar panels
Australia is the land of abundant sunshine. If you expect to live in your house for at least 5 years, a solar system can go a long way towards reducing your energy bills. We save about $1200 per year on our electricity bill by having a 5kW system on the roof.
Rent out a room
The typical Australian house is up there with the largest in the world. It has way too many rooms that aren’t used so why not rent out a room. If you live near to a university you can rent out a room to students for $100 – $150 per week. So you’d be looking at an extra $5,000 per annum of additional income. If you’ve got 2 rooms, even better.
Check the limits on your home loan repayments
When we were looking for a home loan there were some pretty sweat deals on fixed rate home loans, however they came with one major problem, there was a limit on how much you could pay down. For me this was a deal breaker as I intended to absolutely hammer down the repayments much faster than the rules would allow. So if you’re in the same boat I would suggest changing to a loan structure that allows you to pay as much as you want into the loan so you can chop it down really fast. I also believe that fixed rate loans generally don’t work out cheaper for the borrower. The banks have huge teams of people that will set the rate; the loan conditions and the fees such it is favourable for their profit making. With all the resources at their disposal I personally do not favour my odds when bet against the banks.
Pay your mortgage first
Use your bank’s own auto pay system to set the amount and automatically pay off your mortgage, the less you have to think about it the more likely it’ll happen. Most people save what they do not spend, this essentially prioritizes spending over saving which leads to overspending. I’m a big advocate for doing it the other way round, save first, then figure out how to live off the rest. The difference is subtle, but profound. Simply by prioritizing mortgage payments first it puts your mind’s resources towards saving more and spending less. As we all know, our minds are the most powerful resource available to us.
Consider downsizing or renting
I’ve already mentioned previously that Australian houses are way too big. If you’ve made a mistake by taking on a loan that will take too long to pay off then consider downsizing to a cheaper place or renting. Sometimes it’s necessary to just cut your losses and move on.
So there you have it, by implementing the recommendations above I’d have a very rough guess and say that there are potential savings of over $10,000 per annum. With the last 3 recommendations though, the potential savings could be huge but are going to vary greatly from person to person. Especially with paying your mortgage first I strongly recommend that everyone try it, you’ll probably be surprised at how much you can crank up the mortgage payments when you decide to prioritize it.
Engineer your freedom