Let’s face it – homeownership is a long and dwindling path. Throughout this journey, you experience joy, success, sadness and even stress. On the upside, doing things like paying off your mortgage earlier means securing your home and future faster.
Imagine walking up to your doorstep knowing you own your home outright. Why wait for 30 years when you can be debt-free sooner? Live the dream, and pay your home loan faster, smarter and better.
Shave years off your home loan, and own your home sooner with these 7 tricks:
Tip #1: Do a loan health check
It’s no secret that the housing market is very competitive. This means you should also keep up with the changing environment. Are you sure your interest rates are still competitive? Does your loan still fit your current situation?
If you check your rates, chances are you’re paying too much. The advertised rate by the bank will not be your interest rate forever. You should be wary as you can be paying much higher than you should.
It won’t hurt to negotiate with your lender to lower your rates. If they don’t budge, you should shop around for better deals and switch lenders as this may save you thousands of dollars over the life of your loan. Not convinced? Here’s how much you can save by checking your loan:
This means that you can save $259 in monthly repayments. That is over $3,000 a year on your loan! Why settle for 1 when you can shop at over 40 banks and lenders with us?
Tip #2 Pay more frequently
Did you know that there are approximately 26 fortnights in a year? Another tip to pay off your home loan faster is to switch to fortnightly repayments instead of monthly repayments. This strategy allows you to pay faster and potentially save more!
Let’s crunch numbers: Divide your monthly repayments in two, and pay your loan every fortnight. This way, you end up making 13 monthly repayments every year without feeling the pinch on your budget. Also, paying fortnightly may help you reduce the amount of compounding interest on your loan!
Tip #3 Make extra repayments
As they say, every penny counts. Instead of eating out every week and spending $18 each meal, why don’t you dine at home and save $24 per day? That means you may save approximately $168 each week, which you can add to your monthly repayments.
Aside from paying your loan faster, you may also save on interest costs. For example, if you have a $500,000 mortgage for 30 years with a 2.40% interest rate, you owe $201,895 in interest.
If you add an extra $100 to your monthly repayments, you save over $15,000 on the interest, and you own the home 2 years earlier!
Before making extra repayments, check with your lender if you are allowed to make additional payments on your loan. Check how much you can save through our repayment calculator.
Tip #4 Take advantage of loan features
Some loan features can help you save thousands on your home loan if managed right. One key feature you can consider is opening an offset account. This account is linked to your home loan and allows you to reduce the interest charged on your loan.
Here’s how it works: Let’s say you have a loan balance of $500,000, and you put $30,000 in your offset account. Through this, you only need to pay the interest on $470,000 rather than $500,000. The more money you deposit in your offset account, the higher you save on the interest and the faster you pay off your loan!
Tip #5 Use your redraw facility effectively
A redraw facility pools the extra repayments you make. This key feature reduces the interest you pay over the life of your loan. Also, it allows you to make extra repayments without paying high fees.
Since a redraw facility allows you to access the extra repayments, make sure you use it effectively if you have one. Keep track of your extra repayments to know how much you have in your redraw facility.
Also, think twice before making a large purchase, and only withdraw the amount you need. This way, you can keep your redraw balance as high as possible and still benefit from interest deductions.
Tip #6 Pay lump sums
If you have some extra money, consider making a lump sum payment on your home loan. This way, you save thousands of dollars on the interest you pay over the life of the loan. Plus, you pay off your loan and own your home faster.
If you receive a tax refund, salary bonus or monetary gift, consider adding it to your loan repayment. Let’s say you have a 30-year loan of $500,000 with a 3% interest rate, and you get a salary bonus of $3,000 in year one.
If you pay this lump sum to your home loan repayment, you save over $4,000 on your interest repayment. Plus, you shave off 3 months from your loan term. Making this an annual habit makes a huge difference to your loan balance!
Tip #7 Switch to principal and interest repayments
If you have an interest-only loan and can afford to switch, you may consider switching to principal and interest repayments. By paying off the principal of your loan, you can reduce the interest you pay over the life of the loan. This can save you thousands of dollars and help you pay off your mortgage faster!
Want to own your home faster?
As you pay off your mortgage sooner, you knock down your biggest expense. This allows you to dedicate your income to other things you enjoy. Save more on your loan, and own your home faster.
Our expert brokers are with you every step to help you make better and smarter decisions to fit your goals and lifestyle. Get tailored options from over 40 banks and lenders that can help you save more and get you into your home faster!
Have a question? You can always ask with just one click!
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Are you a medical professional? Stay tuned for our upcoming blog about the low deposit loans you may qualify for!