Conversations with a Pug – How to pay off your home loan faster and save money |

Conversations with a Pug – How to pay off your home loan faster and save money

How-to-pay-off-your-home-loan

How to pay off your home loan faster and save money

Home loan debt is not something you want hanging over you any longer than necessary. Thankfully, there are plenty of things you can do to pay off your mortgage ahead of schedule. We’ve compiled a few handy tips below.

Make extra repayments

Making additional repayments is one of the best ways to get ahead on your mortgage, and the good news is that even a small amount can make a significant difference over the life of the loan.

This is especially true in the first few years. While the bulk of your scheduled repayments will go towards paying off the interest, every dollar above that amount will go directly to the principal.

By chipping away at the principal you can reduce the amount of interest it will accrue, saving you money in the long run.

Not every fixed rate loan lets you make extra repayments, and the ones that do will most likely charge you for the privilege or apply annual limits. But if you’re considering a variable rate loan, you’ll find the ability to make free extra repayments is quite standard

Increase your repayment frequency

Increasing your repayment frequency from monthly to fortnightly (or weekly) can also work to your advantage, though this will depend on how your repayments are calculated in the first place.

If your lender halves the amount you pay on a monthly basis and charges it every two weeks, you could shave an extra month off your mortgage each year without putting too much of a dent in your finances.

That’s because someone making monthly repayments of $2,000 can expect to pay back $24,000 over one year, while someone making fortnightly repayments of $1,000 will pay back $26,000.

Some lenders, however, calculate the ‘true’ fortnightly amount by taking your total annual repayments and dividing them by 26 (the number of fortnights in a year). If this is the case, switching to fortnightly repayments won’t make much of a difference.

Use a mortgage offset account

An offset account functions like a regular bank account, with the added benefit of reducing the balance on which your lender charges interest. The more money you have in your offset account, the less interest you’ll have to pay on your loan.

For example, if you have $50,000 in an offset account and you owe $300,000 on your mortgage, then you would only be charged interest on $250,000.

Just like a bank account you can have your salary deposited directly into the offset account. It will also come with a debit card for everyday purposes, such as ATM withdrawals and over the counter purchases.

Make sure you’re getting the best rate

While the above steps can help you get ahead on your loan, one of the most important things you can do is review your interest rate every so often to make sure you’re getting the best possible deal.

This might involve sticking with your lender but switching to another offering of theirs. You might also have luck negotiating a lower rate (just make sure to familiarise yourself with rates offered by competitors as a bargaining chip).

If your current lender won’t budge, consider refinancing to a cheaper lender. While this might involve some fees and paperwork, it can be worth it in the long run if it means saving on interest.

For example, say you’re paying off a loan of $600,000 over 25 years with an interest rate of 3.00% p.a. If you were to switch to a rate of 1.88% p.a. (the current lowest variable rate among providers we track) and keep up the same repayments, you could pay off the loan nearly four years earlier.

For an overview of current offers on the market, reach out and let’s talk.

Source: Niko Iliakis

 

 

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