Forget interest rates, here’s the real key to getting mortgage-free faster

A few tweaks to your mortgage could set you free years earlier. Photo / 123RF

Recent cuts to the Official Cash Rate and the potential for more to come will be a relief for many borrowers, but one financial adviser says the real game changer in getting mortgage-free faster isn’t the interest rate.

Financial adviser at enableMe, Shelley Palman, told Nadine Higgins on target="_self" rel="" title="https://www.iheart.com/podcast/1049-the-prosperity-project-258474717/">The Prosperity Project podcast that while rate cuts take pressure off, those savings don’t automatically result in progress. Changing your financial behaviour does.

The typical 30-year table mortgage structure “is not your friend. You are paying a lot more interest than principal until the latter phases of that mortgage,” Palman says.

In fact, over 30 years at an average interest rate of 6% you can end up paying double what you borrowed back to the bank.

However, Palman cautions against simply shortening your loan term to pay it off faster and save on interest, because higher repayments can come back to bite you if your situation changes.

“That’s where we’re having to go back to the bank and go, ‘oh my gosh, I can’t make my payments’. What that involves is actually going to the hardship team at the bank and pleading with the bank on your knees. Can you give me a mortgage holiday or can I go interest only?” Palman says.

She says different loan structures, like a revolving credit, can allow extra repayments, interest savings, and flexibility – but they need to be managed carefully.

“It can turn into a ‘revolting credit’ if we don’t have guardrails and systems and structures and the discipline around paying that back.”

Palman says it’s not necessarily about earning more, it’s about flexing your behavioural muscle to build better habits, and the systems to support them.

“It might be that extra trip to the supermarket. It might be buying your lunch again for the week. It could be too many takeaways or paying too much on your utilities.

“You know, those little ‘one percents’ across the board that you won’t actually miss,” Palman says.

“You’d be surprised what a little does across the board and how that compounds and ends up being really amazing compound gains that you make.”

Listen to the full episode of The Prosperity Project for more

The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts. New episodes are released every Monday.