When you take out a mortgage, most assume it will be something they’ll have for 30 years. As we’re buying properties later in life, it’s entirely possible your mortgage could live up to the Latin origin of the phrase ‘death pledge’.
It’s no wonder the profits at the four largest banks have grown at three times the rate of the country’s entire economy over the past decade, given over a 30-year period you’ll pay back almost three times what you borrowed.
The most obvious way to fix that is to shorten the term of your loan. The problem is, that means committing to higher loan repayments for the duration of the loan, which leaves little flexibility in your cash flow when life throws you a curveball or an opportunity.
All the banks offer structures to pay your debt off faster or pay less interest. Some will let you automatically increase your repayments by a chosen amount each year.
Others allow you to put your savings against your mortgage balance to reduce interest costs, or there’s revolving credit (sometimes called ‘revolting credit’), where all your money essentially goes into a giant overdraft.
However, don’t rely too heavily on tools provided by those who benefit if you don’t use them correctly.
If you’re not generating a surplus each month or year, it doesn’t matter what structure you use, financial success won’t just happen. You need to make it happen by making sure your relationship with the bank is a short one.