How to Pay Off Your Home Loan Faster

Home Loans

8 Oct

Paying off your home loan sooner than planned is a goal for many Australians. By reducing the loan term, you can save on interest and achieve financial freedom earlier. There are several strategies to consider that can help you pay off your mortgage faster.

Switch to Fortnightly Repayments

Instead of making monthly repayments, consider switching to fortnightly repayments. This method involves making half of your monthly repayment every two weeks. Over the course of a year, this results in 26 half-payments, equating to 13 full repayments instead of the usual 12. This extra repayment can significantly reduce your loan term and the amount of interest paid over time.

Make Extra Repayments

Whenever possible, make additional repayments towards your mortgage. Even small amounts, such as $50 or $100 extra per week, can add up over time and reduce your loan balance faster. Applying lump sums, like tax returns or work bonuses, directly to the principal can also have a substantial impact on reducing your mortgage.

Use an Offset Account

An offset account is a transaction account linked to your mortgage. The balance in this account offsets the amount of interest charged on your loan. For example, if you have a $500,000 mortgage and $20,000 in your offset account, you’ll only pay interest on $480,000. Keeping a higher balance in your offset account can lead to significant interest savings over time.

Refinance to a Lower Interest Rate

If interest rates have dropped since you took out your mortgage, refinancing to a lower rate can reduce your monthly repayments and the total interest paid over the life of the loan. However, it's important to consider any fees associated with refinancing and ensure that the long-term savings outweigh these costs.

Apply Lump Sums

Applying lump sums, such as work bonuses, tax returns, or other windfalls, directly to your mortgage can make a significant difference. These lump sum payments reduce the principal balance, leading to less interest paid over time and a shorter loan term.

Review Your Loan Regularly

Regularly reviewing your mortgage can help you identify opportunities to pay off your loan faster. This includes checking if you're on the best interest rate, considering refinancing options, and assessing your repayment strategy. Staying informed and proactive can lead to significant savings.

Conclusion

Paying off your home loan faster is achievable with the right strategies. By switching to fortnightly repayments, making extra repayments, using an offset account, refinancing to a lower interest rate, applying lump sums, and reviewing your loan regularly, you can reduce your loan term and save on interest. It's important to assess your financial situation and choose the strategies that best suit your circumstances.