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How To Pay Your Mortgage Off Faster
We all dream of a debt-free lifestyle where we own our own homes outright and our pockets are bulging with saved cash.
To help make that dream a reality, here are 10 tips for paying off your home loan faster.
10 Tips to Paying Off Your Mortgage Quicker
1. Make sure your home loan works for you
When it comes to choosing a home loan that suits your needs and works with your lifestyle and goals, look at more than just the interest rate. For example, a home loan that offers an offset account may come with a higher interest rate than a competing product, but could actually save you more money over time.
2. Consider refinancing your home loan
If you’ve reviewed your home loan and found it doesn’t suit your needs, you may want to consider refinancing your home loan. Renegotiating your current rate with your existing lender or moving to a new lender that offers a lower interest rate may result in savings and help reduce the term of your principal and interest loan.
3. Make more frequent payments
Some lenders may allow you to switch from monthly repayments to fortnightly repayments. Because interest on home loans is calculated daily, making payments more frequently may help reduce the interest you pay over the term of your loan so you are debt free sooner.
4. Look beyond the big banks
It’s not all about the big banks – smaller lenders are sometimes backed by larger banks but will usually compete harder for your business.
As well as a more personalised service, you may also find that some smaller lenders offer home loan options the big guys don’t, such as longer loan terms, lower ongoing fees and lower interest rates.
Plus, they usually provide a more personalised service and can offer options that the big guys may not, such as:
- Longer loan terms – for example, 40 years as opposed to 30 years.
- Fixed rate with a 100 per cent offset account.
- Higher lending ratios (LVR) – this means you can have less of a deposit.
- Reduced application and ongoing fees.
5. Consider an offset account
An offset account is a transactional savings account linked to your home loan. When interest on your home loan is calculated, the balance of your offset account is taken off the principal amount owing. This can reduce the amount of interest you are charged and help you pay off your principal and interest home loan faster.
For example, say you have a home loan of $450,000 with an interest rate of five per cent. If you had $50,000 in your offset account, you’d only be accruing interest on $400,000 of your home loan. This means you’d pay $20,000 in interest per annum rather than $22,500, saving you $2500 per annum.
6. Pay off the principal
Depending on your circumstances, you may want to steer clear of interest only loans. Choosing to only pay the interest on your loan for a set period of time will mean that once the interest only period expires, the required principal amount will need to be paid off at a higher propensity.
Attacking both the principal and the interest is the best way to get your home loan paid off faster.
7. Keep your repayments steady
When interest rates drop, try to keep repaying your home loan at the higher rate. The extra money will come off your principal which can help to pay off your mortgage sooner.
8. Know your entitlements
Some lenders will offer discounts and special conditions to people with a specific profession. For example, if you are a certified medical professional, some lenders may waive the Lenders Mortgage Insurance (LMI) or lend at a higher loan to value ratio (up to 90 per cent) before charging LMI. This could give you a significant head start on paying off your loan.
9. Do an annual home loan health check
Never set and forget your home loan. In a tight market, lenders will compete for your business, so take some time every year to do a home loan health check and see what offers are out there. Easier yet, check in with your iSelect mortgage broker.
10. Make your home loan a priority
Tightening your belt on some of your less important expenses can add up to significant savings over time. For example, do you need to buy that chocolate bar at the petrol station, or the branded canned tomatoes?
There’s no point paying for things you don’t need, or overpaying for things you do, so find where you can make some cuts. You could use the extra cash to make additional payments on your home loan and help to secure a debt-free lifestyle much sooner.
For advice on how you could pay off your home loan faster, call 13 19 20 to speak with one of iSelect’s qualified mortgage brokers.