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Paying off your home loan faster
For most of us, paying off a home loan as quickly as possible is the smartest strategy to get ahead financially.
Increase your repayments
It might seem obvious, but the best way to reduce your mortgage is to simply increase your repayments. The simplest and most effective way to do this is to increase your regular repayment amount.
Some other strategies to consider are:
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Paying fortnightly instead of monthly. There are 26 fortnights in a year but only 12 months, so by dividing your set monthly repayment in two and paying it fortnightly, you will be making one additional month’s mortgage repayment each year.
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Making extra repayments whenever you can.
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Keeping your repayments the same if interest rates drop at any time.
- Next time you get a pay rise, put 50% of it towards upping your loan repayments.
Go to our Extra Repayments Calculator now to see what a huge difference just little extra repayments make over time.
Get the right loan
Making sure that you have the right loan to suit your individual situation is important, and your Smartline Mortgage Broker will help you choose a loan that you are likely to be able to pay off faster. There are many loan products that offer flexibility – for example professional packs, line of credit loans, or standard variable loans with a redraw facility, or an offset account.
Make every cent work
100 per cent offset accounts enable you to have every cent of your money working to reduce your mortgage rather than sitting idly in your cheque or savings account. Line of credit loans can achieve the same result but can be more difficult to manage as they are like giant credit cards and require great budgetary discipline from you for them to work effectively.
Consolidate your debts
You can make significant savings in interest by consolidating all your loans – personal, car and credit cards – under your home loan, where the interest is usually at a much lower rate. Remember, however, that putting short-term consumables under long-term finance can prove expensive in the long run.
Make paying off your loan easier
- Beware of mortgage minimisation sales
people. Their services can be expensive, and
they often recommend line of credit loans,
which should be treated with caution.
- We've said it before, and we'll say it again:
pay off a little extra as often as you can. For
example, if you pay an extra $500 into your
mortgage every month you might think that
would mean an extra $6000 a year off your
mortgage, or $60,000 over ten years. Not bad.
In fact, compounding interest means that
$500 a month for ten years would actually
save you $90,000, assuming interest rates
are 8 percent per annum. Even if you
stopped paying the extra after those ten
years, thanks to the extra already paid off,
you would continue to save around $7000
every year – and that saving would grow
every year.
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