If you are living in your property (as an owner-occupier), the interest paid on your mortgage is not tax deductible. Mortgage repayments are made from your after-tax income. Any money you can save on your home loan is therefore even more valuable. Thinking about this in another way, generally the interest you save yourself on your home loan is worth more than the same amount earned from an investment.
Low interest rates are good news for everyone with a mortgage. The reason being that low interest rates provide the perfect opportunity for home owners to get ahead on their home loans by making additional payments towards their mortgages.
The consequence of lower rates is lower repayments – making your mortgage more affordable and perhaps even meaning you will have money in reserve should interest rates increase. One fabulous thing you can do with the additional funds is put it straight back into your mortgage
Why Pay Extra?
Paying more than the minimum will help you pay off your mortgage faster because the extra repayments are going towards the principal of the loan rather than the interest. Not only will you pay off your mortgage sooner, you will also pay less over the life of your loan because you will reduce the interest charges.
Making extra repayments is even more important in the first five to eight years of your mortgage, according to the Australian Securities & Investments Commission (ASIC). As ASIC states on its Money Smart website, most of your payments in those first few years go towards paying off the interest, therefore any additional repayments can make a huge difference in shortening the life of your loan.
Low interest rates actually present us all with a wonderful opportunity to reduce our debts faster. If interest rates fall, your lender may give you the option to reduce your repayments. Try to resist the temptation! If you maintain your current level, you will reduce the amount outstanding on your mortgage, and pay if off sooner.
Please give us a call to discuss the benefits of this strategy further.