If there’s one gift we give ourselves this Christmas, let’s make it one that could make the most difference – taking steps to be debt-free sooner.

This season of low-interest rates – which will go on well past these holidays – makes it the best time to take down a mortgage more quickly. With a smaller proportion of your repayments going to interest, so much more can go to paying down principal.

Understandably, some see low interest rates as a season to take on even more debt. When they are low, it feels like you can afford much more house. But interest rates that go down generally come up again, so it’s a time to make it work for you.

I once asked a friend whether he realised how mortgages are set up in the lender’s favour, not the borrower’s. It’s easy to just carry on making the minimum payment over the full term of the loan. But you end up paying the highest amount of interest over the longest amount of time. What you want, instead, is to pay the least amount of interest over the shortest amount of time.

Banks give us a variety of options, but the trick is to be aware of how much of our choice ends up being a gift to your bank. It’s the gift that keeps on giving – paying lots of interest over many years!

As a borrower, the default settings of a loan will probably not be as much in your favour as they could be. Happily, you don’t need to be locked in to making the minimum payment – you can decide what’s right for you.

Now my friend’s first reaction to all of this was intriguing: at first he felt I was trying to limit his lifestyle by decreasing the day-to-day play money he had.

What I was really aiming to do was expand the way he lived by freeing him up from debt sooner. As we talked, he began to see things differently. A change of perspective certainly helps – especially for something with such long-term consequences as a mortgage.

Finding $100 more a fortnight to repay a $300,000 mortgage at 5%, for instance, you can save close to $29,700 and be done almost three years earlier. You can run your numbers here using our mortgage repayment calculator.

So this season, take advantage. The more we dial down our debt, the more we dial up our future freedom.

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