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.
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.
If you can't make additional regular repayments, you can always make a few voluntary lump sum payments in order to knock off big chunks of your debt more quickly.
This is a great option if you happen to run into a bit of money that you were not expecting, such as a Christmas bonus or an inheritance from a relative. Rather than spending this money frivolously, you could put it towards your loan!
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 an offset sub-account that you can add to your home loan. You can deposit your savings and salary in your offset sub-account. 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.
While a shorter loan term will mean higher monthly repayments, it will mean you save on interest repayments in the long run.
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.
A mortgage refinance allows you to change home loan providers, transferring the debt on your current property to a different lender. Alternatively, refinancing can allow you to change the terms of your existing loan, for example, by switching from a fixed loan to a variable loan, or vice versa.
Why would you do this? Well, because it can lead to you securing a better interest rate of course! Not all home loans will allow you to refinance in this manner, so it's worth talking to an expert. However, when done correctly, refinancing your home loan might help you pay off your home loan faster and you save a significant amount of money over time.
Thinking of refinancing or adding an offset sub-account to your home loan? Why not talk to one of our friendly lending specialists to get started.
Tags: buying property