7 Simple Strategies to Pay Off Your Home Loan Sooner

No one likes paying interest, especially to the bank. By applying just one of these simple strategies you could shave years off your home loan and save thousands of dollars in interest payments.

On an average 30 year home loan of $400,000 at an interest rate of 4.50% you’ll be paying back a total of about $329,000 just in interest. 

Now, let’s look at how we could reduce the total amount of interest you pay and the number of years it takes to pay off your loan.

Strategy #1: Shop Around for a Better Rate

Obviously, if you’ve just set up your home loan, it’d be too late for this strategy.

Remember, that it is not always only about chasing the cheapest interest rate. It is about finding the best possible rate for the home loan product that is right for you

Start with your objectives so that you can structure your loan adequately. And then, and only then, seek to find the best available rate. 

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Strategy #2: Overpay or Make Extra Repayments

Once your loan is setup, the easiest way to save time and money is to make extra repayments. Either by simply paying a little more then you have to every month, or by making extra payments as often and of whatever amount you can.

Let’s see how much you’d save if you decided to pay an extra $100 per month on top of your required monthly repayments:

- Savings on total interest paid: $40,847

- Time shaven off loan: 3 years and 3 months

To save even more money and time... keep increasing your overpayments with every wage increase.

Make sure the product you choose allows extra repayments. Not all of them do. Many fixed products either don’t allow extra repayments or only in a limited way.

Strategy #3: Make Lump Sum Repayments

Lump sum repayments are another form of extra repayments but less predictable and usually made in bigger chunks. The money can come from tax refunds, gifts, bonuses, or inheritance.

Get into the habit of making lump sum payments into your home loan whenever possible. If your product allows redraws, you can always take some of that money out if you ever need to.

Let’s see how much you'd save if you made a single one-off lump sum payment of $5,000, 2 years after you set up your loan:

- Savings on total interest paid: $14,818

- Time shaven off loan: 10 months

Again, make sure the home loan you choose allows you to make lump sum payments.

There are only a few products that allow unlimited extra payments on fixed rates. Call us if you are interested to find out which ones.

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Strategy #4: Increase your Repayment Frequency

This is one the simplest and most effective ways to painlessly shave years off your loan and save tens of thousands in interest payments.

It’s simple. By switching to fortnightly repayments instead of monthly, you’re effectively making one extra loan repayment each year.

Again, make sure your home loan products allows you to pay fortnightly. Not all of them do.

Strategy #5: Maintain your Repayment even if Interest Rates are Going Down

If interest rates go down and your bank reduces your repayments - don’t change the amount you pay.

This has the same effect as making regular overpayments (see strategy #2).

Strategy #6: Make an Offset Account Work for You

 An offset account is a great way to save significant amounts of money and time on your home loan. But only if you use it properly. 

But an offset account is not for everyone. We’ve found that an offset account is only really worth it if you are able to maintain a balance of at least $9,000 depending on your loan size.

Anything less and the cost of having an offset account will erase all the benefits and may even, in some cases, cost you money.

Almost every lender charges either an annual package fee or a monthly account keeping fee on their offset accounts.

Ask us if you’re not sure if an offset account is right for you. 

Strategy #7: Reduce your Monthly Ongoing Fees

Think of any ongoing fee as money you could have saved towards extra repayments.

The home loan market is currently fiercely competitive which means lenders are trying to attract new customers not only with more attractive rates but also with special offers on upfront fees and ongoing fees.

Make sure to shop around to make sure the home loan you choose not only has all the features you need but also offers you the best value.

 

Free Home Loan Health Check

We offer all our clients a free yearly home loan health check to review their current home loan. If you mention this article when you call, you too can take advantage of our free home loan health check.

If you want more information, or just to have a chat and see if I can help you gain a real pre- approval, please feel free to call me on 0413 938 848, or send me an email at jason.coviello@mortgagechoice.com.au. Or if you'd prefer to be social about it, feel free to get in touch here via my Facebook page! 

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