For instance, if you borrow $350,000 at a 3.64% interest rate on a loan term of 30 years, you will have monthly repayments of $1,599. The total amount you repay will be $575,689. That’s $225,689 in interest alone!
If you decide to pay your $350,000 loan off in just 20 years with the same interest rate of 3.64%, your monthly repayments will be $2,055. This is a significantly higher amount but it means you’re going to save $82,458 over the life of your loan.
If you’re considering trimming your loan term to pay off your mortgage faster, here are some tips to help you:
Make extra repayments
Before you borrow, ask potential lenders if it’s possible to make extra repayments towards your mortgage. Some home loan types don't allow it, in particular fixed-rate mortgages. But if you have a variable rate mortgage, it’s possible to make additional repayments.
Making more frequent repayments is one simple strategy to pay off your mortgage faster. Consider changing your repayment frequency to fortnightly instead of monthly. This is an effective strategy because you’re basically paying an additional month per year because you’re making 13 monthly repayments. Let’s say you have a 30-year mortgage, this will be trimmed down almost 6 years when you decide to pay fortnightly.
Consider a redraw offset account
Lenders like loans.com.au offer a redraw offset account. This is a sub-account in your mortgage where you can deposit your savings and salary. Any money in the account is offset against your loan balance, and interest is only charged on the difference. For example, if your loan amount is $350,000, and you have $50,000 in your account, then you will then only need to pay interest on $300,000.
One question we get asked all the time is “what is a redraw offset facility and how can I benefit from using it?VIEW ARTICLE
An offset account is a great feature for borrowers and can help you save time and money off your mortgage. Find out if an offset account is right for you.VIEW ARTICLE
This feature allows to you offset any cash funds you hold, including your salary, against your loan balance and save on interest.VIEW ARTICLE