The advantages of paying off your home loan sooner are obvious: you get to own your house early and reduce the amount of interest you pay over the life of the loan.
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:
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.
At loans.com.au, we offer a redraw offset facility that you can add to your home loan. You can deposit your savings and salary in your redraw offset facility. 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 offset, then you will then only need to pay interest on $300,000.
Consider adding offset to your home loan - talk to one of our friendly lending specialists to get started.
Tags: buying property | redraw offset facility
One question we get asked all the time is “what is a redraw offset facility and how can I benefit from using it?
This feature allows to you offset any cash funds you hold, including your salary, against your loan balance and save on interest.