How to pay your home loan off faster
If you own your own house and not looking at property investment then it makes sense to pay off your home as quickly as possible to rid yourself of this debt.
One of the main advantages of paying your mortgage off faster is the fact that you will be paying less in interest. But how do you do this? There are many options available that you can utilise which could actually save you hundreds or even thousands of dollars in interest.
1) Make more frequent payments By changing your repayments from monthly to fortnightly you can actually save yourself money. Fortnightly repayments mean that you will be splitting your monthly repayment into two so technically you will still be paying the same amount each month. However, there are 12 months a year and 26 fortnights which actually means you will be making an extra monthly repayment a year which can help reduce your loan over time.
However, you need to check with your mortgage provider that you are able to make fortnightly, or even weekly repayments as some providers do not allow this. It’s best to check this first before you take out the loan.
2) Pay off the loan faster Most mortgage loans are taken out over a 25 year period. However, if you are able to afford to then reducing the loan term can help you save thousands of dollars in interest repayments. You just need to check that you can afford these new repayments without stretching your budget too far. This can easily be done by using a mortgage calculator.
3) Make extra repayments By paying a little bit extra on each repayment this can all add up to help reduce your loan faster. If for example your fortnightly repayment is $242.00, why not round this up to $250.00. This extra $8 by the end of the year will turn into an extra $208 which doesn’t sound like a lot, but helps.
4) Find a lower interest rate It makes sense to find a loan that offers a low interest rate as this will make your interest repayments a lot less, so if you are paying too much interest make sure you look at switching loans. You could even treat the loan as being slightly higher than it actually is (for example the rate is 4% but you are actually choosing to repay at 6%). By taking this approach you will be making higher repayments, and if interest rates do rise then you won’t get a nasty shock as you have been repaying at a higher rate.
5) Make larger payments If you have come into some extra money, whether it is from a Christmas bonus, or inheritance then you might want to use this towards reducing your mortgage as this can effectively help to reduce your loan term by a number of years depending on the amount.
6) Cut down on those luxuries If you are serious about repaying your mortgage as quickly as possible, then you might need to think about cutting down on those luxury items. This could mean making your lunch rather than buying it, going out once a week or having a cheaper holiday. You shouldn’t cut out everything, but cutting down on some of the minor luxuries and using this money to pay down your loan can have a positive effect.
7) Check for any discounts Did you know that certain professional groups or members of professional organisations can get a discount from some lenders? Make sure you ask your lender the question to find out if you indeed qualify for a discount.
Remember like any types of loans or savings, it is important to review this and see how it is going and what you have left to pay. If there are any changes such as an interest rate increase, it might work in your favour to shop around and find a better deal and compare what else is available on the market.
So what about investors? For those that are taking the property investment approach then paying off your home loan is probably not the best way forward for you as you will be wanting to use this money as a deposit towards your next property. Instead, you will likely want to have an interest only loan so that you only pay off the interest each month.
Published on 7th of January 2015 by Marty Stanowich