3 tips to pay off your home loan faster and save money
As you work towards reducing the life of your loan, there are some easy things you can do to help speed things up by a few years. Here we share three tips to help you become mortgage-free sooner than you think.
1. Make extra repayments
One way you can pay off your home loan faster is to make small extra repayments. Whilst it is always advantageous to deposit lump sums such as work bonuses and tax refunds, small amounts can still make a significant difference. Making small and frequent payments will greatly reduce the life of your loan.
For example, on a $600,000 loan, injecting an extra $50 every fortnight—only $25 a week—can save you $35,000 of interest over the life of the loan and shorten its length by almost three years.
2. Change your payment structure
If you can’t make extra repayments, you can still save years from your mortgage by just switching your payment intervals from monthly to fortnightly, which is particularly helpful if you are paid on a fortnightly basis.
There are 12 months in a year, but 13 cycles of four-week periods. Therefore, when you make fortnightly payments, in effect you are paying off an additional month each year.
3. Select the right loan type
You can reduce your loan principal faster and save on interest right away by having a loan that doesn’t penalise you for making additional repayments, letting you make the most of payments, whether they are small extra payments or bonuses.
An offset account will reduce your principal by using your living costs or savings, but still allow access to your funds through a transaction account.
You can reduce the loan on an interest-only mortgage on your investment by putting extra rental income into the offset account, as interest is calculated daily. Having an offset account may incur additional fees, but they may likely be less than the interest you save. The easiest way to figure out if this option is best for you financially is to speak with a finance broker.
It’s easy to pay off your home loan faster with a bit of financial discipline and expert help to make sure you have the right loan options in place. Call 1300 656 660 to talk to an MFAA accredited broker who will match the perfect loan to you.