Your mortgage is arguably the biggest debt and ongoing bill you will have in your life, so it’s understandable you’d want to try and pay it down as soon as you can.
But just how can borrowers shave years off of their home loans without being hit by barriers, like fees? Let’s dive into how you can pay off your mortgage faster, and without penalties.
1. Make extra repayments
One of the easiest ways to pay off your home loan faster is to make additional repayments along the way. This can be in ongoing increments or one-off, lump sum payments, depending on what your lender allows. Perhaps you’ve inherited a large sum of money or received a generous tax return this year? If your home loan allows for extra repayments, then you can put these funds directly towards your biggest debt.
Keep in mind that you may face fee barriers here, as some lenders do not allow you to make extra repayments. Ensure you’ve double checked your loan’s product disclosure statement and terms and conditions to confirm you can do so without charge.
Reduce Home Loans customers rejoice! All our variable, owner-occupier home loans allow for unlimited extra repayments without penalty. Hop on to our Extra Repayment Calculator today to see just how much time and money you may save making additional repayments
2. Make higher repayments
Similar to making extra repayments, this strategy involves repaying your mortgage as if you were on a higher rate. This is particularly effective if your home loan rate has recently dropped, or if you’re considering switching to a lower rate home loan.
All you’ll need to do is contact your lender and ask if you can continue to make repayments as if you were on a higher interest rate, as you ideally would have already budgeted for this amount.
If you are a Reduce Home Loans customer and enjoying one of our recently discounted home loans, consider reaching out today to see if making higher repayments may suit your financial needs.
3. Increase your repayment frequency
Another easy way to see immediate results in paying down your mortgage faster is to switch from monthly to fortnightly or weekly repayments. Paying at a more frequent rate may ultimately allow you to chip away at your principal a lot faster than paying monthly. As interest is calculated daily on home loans, more frequent repayments may help to reduce your interest over the life of your loan.
Further, depending on the lender, paying fortnightly may mean you make an additional months’ repayments each year. There are 12 months in a year, 26 fortnights and 52 weeks. Say you were making exactly $2,000 in repayments each month – in one year you’d pay $24,000. However, if your fortnightly repayments were exactly half your monthly repayments ($1,000), over 26 fortnights you’d repay $26,000 – an extra months’ repayment each year.
4. Use an offset account
An offset account is a helpful tool that may aid in reducing your home loan principal, and therefore pay your debt down faster. An offset account works as a linked transaction or savings account to your home loan, in which any money you deposit “offsets” your home loan balance, reducing your repayments.
For example, on a $400,000 home loan, if your offset account had $50,000 in it, your repayments would be as if your home loan were only $350,000. Reducing your loan principal, and therefore your interest paid over the life of your loan, may be able to help you pay off your mortgage faster.
5. Avoid interest-only repayments
While it can be tempting to pay interest-only repayments on your mortgage to keep costs low, it is a risky option, as you will not be shaving down any of your loans’ principal. If you’re not paying down your principal, you’re not paying off your mortgage, and interest-only repayments, while cost effective, can keep you stuck in a debt cycle.
If your overall debt isn’t shrinking, then you will pay more interest over time. This can not only cause financial stress on your budget, but lead to a lengthier, most costly mortgage. Consider if paying principal and interest is better suited to your home loan journey if you’re hoping to shave years off your loan as quickly as possible.
Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.