Buying a home is probably the biggest investment you will make in your life and at the same time the home loan will be the biggest loan you will take. From taking the stress out of this home loan there are definitely benefits to paying off your mortgage before your loan is due.
Let’s explore some tips and tricks that will help you pay off your mortgage faster – and make your dream of owning a property a reality.
These five strategies can help you pay off your home loan faster, saving you significant money in interest charges in the process:
Make extra payments
When you take a home loan, check whether the lender allows you to make overpayments. One of the simplest and easiest ways to pay off your mortgage faster is to increase the amount you pay for the principal each month.
Alternatively, you can pay some amount if your lender allows it. And if you receive a work bonus, inheritance or tax return, consider writing off this amount. Because as a general rule, the less principal you owe, the less interest you will be charged. This will reduce both the life of the loan and the amount of interest you are charged.
Switch to fortnightly repayments
If you currently pay your home loan in monthly installments, try making your repayments fortnightly. If you pay fortnightly, you’ll make 26 payments a year, so switching from monthly to fortnightly means you’ll earn the equivalent of an extra monthly payment each year.
Find a lower interest rate
Determine the features of your current loan that you want to keep and compare the interest rates of similar loans. If you find a better rate elsewhere, ask your current lender to match it or talk them into offering a cheaper alternative.
If you are a responsible borrower, they may be obligated. Customer retention is important to lenders when they have to compete for customers.
Make higher repayments
Another way to get ahead on your mortgage is to pay off the loan as if you had taken out a loan with a higher interest rate. The extra money will help pay off your mortgage.
If you switch to a loan with a lower interest rate, keep paying the higher-rate loan.
Consider an offset account
An offset account is a savings or transaction account linked to your home loan. Your offset account balance reduces the amount owed on your home loan. This reduces the amount of interest you pay and helps you pay off your home loan faster.
For example, if you borrow $500,000 and have $30,000 in your offset account, you will only pay interest on $470,000.
However, remember that you must have sufficient balance in your offset account to take advantage of it properly.
Avoid an interest-only loan
Interest home loans involve loan repayments that only cover the interest on the amount you borrow.
Most home loans are principal and interest loans. Its repayments reduce the amount of the loan and cover the interest for that period.
Interest-only home loans are usually for a fixed period of time, such as five years, and then the loan reverts to a principal-and-interest home loan.