Simple strategies to pay off your home loan sooner
Of course you want to pay off your home loan as efficiently as possible to build equity in your home and avoid excess interest payments.
Yet you don’t want to sacrifice your quality of life for the sake of making crippling mortgage payments each month.
There are some simple strategies to help you pay off your home loan faster, without becoming too stressed about a tight budget.
Place any lump sum payments into your mortgage account
If you receive an annual bonus or a healthy tax return, place the extra money into your mortgage account. These lump sum payments can drastically reduce your loan term.
Pay the same amount when interest rates drop
Don’t let your bank reduce your regular mortgage payment when the interest rate drops – continue paying the same amount, and this will reduce the interest, eventually cutting down your loan term.
Offset your loans with a savings account – pay wages into offset
As your savings account earns interest, this amount is subtracted from the interest payable in your loan. When you reduce the amount of interest you need to pay, you can cut down on the length of your term.
Shop around for a better rate
Always stay alert for a better rate or a loan more suited to your requirements. You can delegate this task to a mortgage broker who will let you know if another lender can offer you a better rate or who can negotiate on your behalf with your current lender to improve the terms of your loan.
Increase your repayment frequency
Simply by making payments fortnightly instead of monthly, you will be making one extra payment a year. Again, this cuts down on the interest you need to pay, shortening the length of your loan term.
Avoid additional debt
While you are working hard to reduce the amount of interest you are paying on your home loan, you don’t need to accrue additional interest payments through credit cards and car loans.
Minimize your debts so you can concentrate on paying off your home loan, as this is the asset which will appreciate in value.
Examine your budget
Have a close look at your weekly or fortnightly budget and see if you can cut down costs anywhere in order to make a small increase on your loan repayments.
You could save $50 to $100 a week through simple strategies such as grocery shopping once instead of twice a week or cutting down on takeaway meals or having a “no spend” day once a week.
That small amount of extra cash can be diverted into your mortgage payment, where it will add up to huge savings in the long term.