Ask Paul: Is there a secret to smashing my mortgage early?

Hi Paul,

I'm getting a lot of information about financial advisers who charge a fee to explain how to pay off your home loan within 7-10 years.

I'm 58, have a mortgage of $650,000, not including interest, with 22 years left on the loan. Our household has a combined income of $250,000.

My loan is linked to an offset account and has a redraw facility and the majority of our net income goes into the offset where the mortgage is drawn from.

I want to start paying an extra $500 week directly into the mortgage, do I put everything into the mortgage and draw 
from the redraw facility?

I may only have seven years left before I look at retirement. It would be great to pay down the loan as much as I can.

It seems like there's a big secret to paying it down that nobody wants to tell you unless you pay for the privilege. - Sven

Ha ha, good one, Sven. You are spot on, there is absolutely no secret to paying down a mortgage or, quite frankly, pretty much anything to do with the basics of money.

I have looked at a few of the financial advice groups 'offers' about paying down your mortgage and, while I see absolutely no reason to pay anyone to do simple things, most that I have looked at are quite sensible.

The most common offer, for a fee, seems to be budget control. This I agree with, but for heaven's sake, we can do our own budget and cut out waste and plan to generate savings that go straight into the offset.

Most will recommend you do other sensible things, such as have your salary go into your offset, and use a credit card that is paid off in full before the interest-free period expires, usually around 55 days.

Mainly online, I do see some people offering crazy stuff. One is to gear up to buy shares, which historically, over the very long-term return, have returned above the interest cost of your mortgage.

The idea is you make higher returns from your shares, sell in the future and pay off your mortgage. Technically, this is historically true, but the promoters conveniently forget to mention time, risk and tax.

Regular payments into your offset account are as close to risk free as you can get. In the short term shares are downright risky. They also 'forget' that returns from shares in the form of dividends and growth are taxable.

Money you put into your mortgage via an offset account is my preference, it effectively earns the rate of interest on your mortgage, tax free.

On a risk-adjusted basis, this sales pitch to buy geared shares is just nonsense, though it can make the promoters high fees.

So, there is no big secret and no need to pay anyone. Control your spending through a budget, pop the surplus into your offset account.

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