Congratulations, you’re a homeowner! Purchasing property is always an exciting and life changing event. Whether it’s your first home or an investment property, doing so opens the door to several new opportunities and challenges. Unless you’ve purchased the property outright, you’ll be paying off a home loan, typically over a 25-30 year period.
However, there are a few things you can do to pay off your mortgage early and
avoid paying unnecessary interest. Here are 4 effective ways to pay off your
home loan faster.
Tip 1: Switch to fortnightly repayments
By switching from monthly to fortnightly repayments, you can pay off a little extra every year without making a sizeable dent in your savings. While there are 12 months in a year, there are 26 fortnights, meaning you’ll effectively be paying an extra month’s repayment each year. This
can reduce your loan term. For example, if your minimum repayment amount is $3,000 a month, by turning this into a fortnightly repayment of $1,500, you will pay back $39,000 a year instead of $36,000.
Tip 2: Consider refinancing
A mortgage broker may be able to refinance your home loan to a product with a lower interest rate. If you opt for a fixed rate home loan, you will be able to pay a consistent sum in interest during the fixed rate period, but you may be restricted in how many extra repayments you can make. It also means if interest rates fall you won’t benefit. By opting for a variable rate home loan, you’ll enjoy more flexibility in paying extra when it suits, and you get the benefit of paying less in interest if interest rates fall. However, if your interest rate rises, you may
find yourself paying more than expected.
Refinancing isn’t for everyone, and changing your home loan can include some pricey fees upfront, including exit fees and joining fees. However, if you speak to a mortgage broker about your needs, objectives, current financial situation and whether you can afford a different loan structure, and then decide that it’s the right way forward, it can be incredibly beneficial down the line.
Tip 3: Pay extra lump sums
Did you get a bonus from work? A decent tax return at the end of the financial year? Some extra cash from a side hustle? Instead of splashing it on that new tv or home gym you’ve had your eye on, consider investing it straight into your mortgage if your loan structure allows. Small lump sum payments here and there can have a significant effect on the length of your loan term and can reduce the amount of interest you have to pay. Lump sum repayments may incur additional fees. We recommend speaking with your local mortgage broker to find out if this strategy is right for you.
Tip 4: Take advantage of an offset account
Opening an offset account is a smart way to reduce the amount of interest you are charged on your home loan. An offset account is like a savings account linked directly to your home loan. The balance in your offset account offsets the balance of your home loan, meaning you’re only charged interest on the difference. So, if your home loan balance is $400,000 and you have $75,000 in your offset account, you are only charged interest on $325,000. This doesn’t reduce your minimum monthly repayment amount, but reduces the amount of interest you have to pay. This could cut years off your home loan and save you thousands of dollars in interest.
These tips may help you to pay off your home loan faster. By speaking to us, you can work out which strategy is right for you and potentially shave both dollars and years off your mortgage. get in touch today.
