How to save $94,000 on a $500,000 mortgage

There’s one simple way to save $94,000 on a $500,000 mortgage – and if your mortgage is higher, doing this will save you even more.

With sky-high property prices around Australia and equally eye-watering mortgage debt levels, paying down your mortgage can seem like a mammoth job. And it clearly takes some serious work to make it happen, but there are some simple hacks you can use to get there – if you know what to look out for.

Based on a 30-year mortgage of $500,000 at the current average interest rate of 3 per cent, you’ll pay a whopping $262,487 in interest costs, reflecting more than half the original amount you’ve borrowed.

But, if you could manage to pay down that mortgage over 20 years instead of 30, your interest bill would be cut by over $94,000 – cutting your interest costs by over 36 per cent. And on top of the interest savings, you’ll be debt-free 10 years sooner.

It’s not easy, but there are some things you can do to make this happen faster and easier.

Refinance regularly

The mortgage market is highly competitive, and the banks and big financial institutions really want your business. This means they will offer sharp interest rates, cashback offers, discounts, and other benefits of switching your mortgage regularly.

Taking time to switch mortgages can save you a lot if done right.

You should be aware that there are often costs involved with switching your mortgage, through application and administration fees, all in addition to the time cost of going through the refinancing process. You should ensure that you’re better off after these costs are factored into the switch.

Put some time aside to keep across what’s on offer on a regular basis; you’ll be surprised how much you can save.

Get Cashed Up

Created by financial Adviser Ben Nash, Cashed Up is news.com.au’s free six-week course to help Aussies get their finances in check. Those who sign up to the budget bootcamp get weekly, step-by-step challenges to improve their financial fitness.

By the end of the six weeks, participants will have set a budget, created a savings plan, learned how to invest, and sorted their superannuation. The interactive course can be started at any time and aims to empower participants to make more informed financial decisions.

Set debt reduction targets and timelines

Because paying down a mortgage is a big job, you want to give yourself every advantage in making it happen. Like any big goal, you need to put in some effort. Keeping yourself motivated as you put in the work will go a long way to helping you stay the course.

Set a goal to pay off your mortgage sooner and chip away to make it happen. Picture: NCA NewsWire/Gaye Gerard

There’s an old saying that the best way to eat an elephant is one bite at a time, and when it comes to paying down a chunky mortgage this rings true. Think about when you want to be mortgage free, and then work backwards to figure out what you need to do to get there.

Use milestones along the way that you can celebrate as you make progress, and then get crystal clear on the timelines you’ll hit them. This way you’ll be more focused and give yourself a better chance of success.

Budget, budget, budget

I’m not a fan of the ‘b’ word, but your budget is the foundation that will drive how quickly you hit your debt targets. Take the time to map out the spending you want to do, and make sure there’s enough left in your regular savings to hit your mortgage milestones.

Build your dream team

When it comes to property and debt, having the right people in your corner will make a big difference to how quickly you make progress.

A good mortgage broker can help you refinance and ensure you’re getting the best deal. A good financial adviser can help you with your goal setting and tax-effective strategies to pay down your mortgage faster and easier. And a good accountability partner can help keep you motivated and on track.

Get a good broker and financial adviser on your side.

When choosing your dream team, you’ll want to know they’ve been where you are before so they know what they’re talking about. Also if you’re using a professional, look out for conflicts of interest so you avoid any influence in their advice.

The wrap

Paying off your mortgage is one of the building blocks of true money success. Apart from the peace of mind and confidence that comes with knowing you’re debt-free, eliminating your mortgage will free up more cash which you can use to build your wealth.

It’s no small task, but the juice is worth the squeeze. Be smart, stay consistent, and make it happen – and you’ll go a long way to setting up your financial future.

If you want to make your next money move an easy one, check out the news.com.au free six-week Cashed Up challenge – where you’ll get my top tips and money hacks to make it easy to save more money faster, then learn how to get your money working harder for you.

Ben Nash is a finance expert, commentator, podcaster, financial Adviser, founder of Pivot Wealth, author of the Amazon best-selling book Get Unstuck: Your Guide To Creating A Life Not Limited By Money.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.