Five tips to pay off your home loan faster
By: Katie Eastment, Aug 2019
While the majority of home loans will have a 25 or 30-year term, paying it off quicker could save you thousands of dollars over the lifetime of your loan.
Getting ahead with your home loan is all about being smart with your repayments. See our best tips on how to reduce the life of your mortgage and make serious savings too!
Make extra repayments
Time is money when it comes to home loans. It sounds simple, but many people don’t realise the impact of making extra repayments. Even a small amount can make a huge difference over the life of your loan.
For example, on a $400,000 loan, just $20 per week could save you over $20,000 in interest over the life of the loan and enable you to pay off the loan more than two years faster!
If your budget and loan terms, allow for extra repayments, it could save you, big time!
Add any lump sums towards your mortgage
If you receive a generous gift, bonus or inheritance and you are on a variable interest rate, consider putting the additional cash into your mortgage. It can be an effective method of paying off the mortgage faster.
Make more frequent payments
Most lenders will let you move from monthly to fortnightly or weekly repayments. As the interest on your loan is calculated daily, making more frequent repayments can help reduce the amount of interest you pay over time.
It's often a good idea to synchronise your repayment frequency with your salary so that soon after your pay hits your bank account, part of it is transferred onto your mortgage.
Plus, there are 26 fortnights in a year but only 12 months, so you’ll essentially be paying an extra four weeks' worth of repayments each year.
When rates are low…
If rates decrease, you can continue to pay the higher repayment you are already accustomed to. It will mean you are paying higher repayments without any extra money coming out of your account each month.
Alternatively, if you lock in your loan at a lower rate, make repayments equal to what would be required if your rate was slightly higher.
With this strategy you will be paying off extra each month, plus, you won’t be affected by a rate increase in the future.
Make use of redraw or offset accounts
By keeping your savings in your loan account as redraw, or in an offset account, you will reduce the interest paid on your loan. Typically, the savings you’ll make will outweigh the interest you could have earned in a traditional savings account.
Additionally, consider having your wage paid directly into your offset account. Interest is commonly debited at the end of each month, and calculated daily, so having the extra money sitting in your offset account for a few days could save you a few hundred dollars a year in interest savings.
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Resimac. The above is general commentary only and is not advice tailored to any individual’s financial situation. We recommend seeking advice from a finance professional before implementing changes relating to your finances.