5 ways to pay off your home loan in record time
When you purchase a property and you hear that your loan term is 25 to 30 years, it can become an intimidating experience. But it can also be a very rewarding one if you have the right attitude.
Going in with a positive attitude and a well thought out plan to chip away at the loan repayments in the early years could cut as much as 10 years off the life of your loan.
And with the Reserve Banks of Australia’s decision in early November to cut the official interest rate once more to a record low of 0.10 per cent, the dream of owning your property outright in less time is more within reach than ever before.
Here are five ways that you can help pay off your mortgage in record time.
1. Find the right loan for your circumstances
There are endless amounts of home loan options available but not all of them will be right for you.
Generally you’ll want to look for a loan with a competitive interest rate, flexible repayment options and minimal fees.
We also recommend looking at the “comparison rate” rather than the “advertised rate” as this figure is the true value of your loan including any interest and fees.
2. Make fortnightly repayments
By changing to fortnightly repayments this actually equates to making 13 months’ worth of repayments a year rather than 12.
Over a 30 year period this will save you roughly 2.5 years in your loan.
3. Make extra repayments
This one is a given. The more you pay, the sooner you’ll pay it off.
Whenever you have a little bit of extra money to spare – maybe it’s your tax return, or a Christmas bonus – pop it into your home loan or offset account and start saving on that interest.
Some fixed rate loans have restrictions on how much you can repay, so make sure you ask your mortgage broker this question.
4. Use an offset account
Offset accounts are a great way to reduce the amount of interest you’ll pay through your savings, as this amount is deducted from your loan.
For example if you have a $400,000 loan but have $10,000 sitting in your offset account you’ll only be charged interest on $390,000 instead of the full $400,000.
Sometimes you can save thousands of dollars by simply changing loans or lenders. The interest rate you were placed on three years ago for example may have changed significantly and you may not be getting what is currently being offered in today’s market.
The first place to look is to check your bank statement for your current interest rate and if it’s higher than 2-3 per cent then it’s time to call your mortgage broker for a review.