5 tips to try
These five tips might help you pay off your home loan sooner.
1. Paying weekly or fortnightly instead of monthly
So how this works is you are paying half of your monthly repayments every fortnight, this way you end up making 26 payments a year which is as much as paying an extra month every year. While it doesn’t sound like much, Tovey says that extra payment does add up. Or you could pay a quarter of your monthly repayments every week which will have a similar effect.
At today’s interest rates this could get you to a zero balance more than 4 years earlier
2. Increasing your minimum mortgage repayments
Increasing your minimum mortgage payment is very similar to what’s described above, you might already pay fortnightly as this works best with your pay cycle but your repayments are calculated so you will pay for 30years. So, what you can do is just pay a bit extra. $20 a week $50 a fortnight or $100 a month could save you thousands in interest and get you to own your home sooner.
If your loan has a redraw facility, additional payments made above and beyond your minimum mortgage outgoings would be available for you to withdraw if needed.
Everything you pay extra is coming straight of the balance of your loan and you will not pay any interest on it again.
3. Offsetting your loan
An offset account is a loan feature that could help you save on interest by allowing you to ‘offset’ the balance owing on your loan with savings you may have.
For example, if you have a $250,000 loan at 4.50% per annum for 30 years and keep a balance of $25,000 in your offset account, you would only pay interest on $225,000. This could save you more than $59,000 in interest and reduce the length of your home loan by almost four years.
Most mortgages have a higher interest rate than what can be earned in a savings account, so using an offset account to reduce your loan’s interest can be a good way to get ahead. There might be costs involved in having an offset account, and if you only have a little money in your offset account it might cost you more then it saves you.
If you’ve had your home loan for some time it would be a good idea to have a look and see if it is still the best for you. Your lender might not have passed on all the rate cuts or might have lifted the rates more than other banks, do you know what your interest rate is and how it compares to other lenders?
Also, when you took out your home loan your situation might have prevented you from getting the best rate, but now your situation might have changed which allows you to save some money.
Most fixed-rate loans don’t allow you to make extra payments or pay off your loan early without incurring penalties.
5. Making additional lump sum payments
By paying extra when you can, using a bonus, your tax return, a gift or any other spar money you can also reduce your home loan and the time until you own your home outright.
For example, a one-time $10,000 payment at the beginning of a $300,000, 30-year mortgage at 4.50% per annum could save you over $26,000 in interest over the life of the loan.
By using one or all of these strategies, you can pay off your home faster, and just imagine what life will be once there are no mortgage repayments.
If you have any questions and would like to speak to one of our lending specialists just leave us your details and we will get in touch with you.