02 Nov How to pay off your home loan faster
Purchasing your first home is one of the most exciting events in most people’s lives. Having your own home and not having to pay rent is incredibly satisfying and it also allows you to build wealth as the value of your property increases over time.
However, owning a home comes with responsibilities and your main requirement will be to pay down your mortgage over time. With 30-year mortgages common these days, the prospect of paying down that debt can seem a little overwhelming.
Fortunately, there are some things you can do to pay off your home faster.
Increase your repayment frequency
Many borrowers opt to pay down their mortgage with regular monthly repayments. That means you’re making 12 payments each year.
If you were to move that to fortnightly, you’re actually making 26 payments per year, which means you’re paying down more over the course of 12 months. That can substantially increase the rate that you pay down a mortgage.
Round up
Another way of getting ahead on your mortgage is to simply round up on your repayments. If you need to pay off $1895 per month, simply round that amount up to $2000.
Again, this seems like a small change, and it is, but over time those extra payments will reduce your overall principal and therefore your interest.
Borrow less
There’s no reason that you actually have to use all of your borrowing capacity when you purchase a property. If you have spare capacity, that means you can actually put those funds into paying down your mortgage faster.
You can use those additional funds to pay down your mortgage by making higher repayments, more frequent repayments or even paying off large chunks with any spare funds each year.
Use an offset account
These days, there are many different home loan products that allow you to maximise your money. An offset account allows you to save on interest repayments by effectively reducing your principal component. An offset account acts like a normal transaction account, but any money in the account is reduced from your home loan balance.
This way, you can have the best of both worlds, by parking your spare cash in the offset account and reducing your interest, while still having access to it like you would a normal transaction account.
Consolidate debts
When you take out a home loan or even when you go to refinance, you should also look at trying to consolidate any debts you might have. Debt consolidation works by rolling any high-interest debt into something with a lower interest rate. That way you’re able to save on interest.
If you then take those extra funds and put them back into your loan or even offset account, you’ll be able to save even more interest on your home loan and pay it down faster.
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