Want my number 1 tip for paying your home loan off and owning your home faster?
Make more repayments
There are no tricks to paying down home loans because the principle home loan debt must be repaid. What you can control though is how you make repayments so that you can lower the interest, fees and charges and taking control of these makes a massive difference over time to how fast you pay off your home loan.
Apply a few simple pieces of knowledge and you’ll be astonished at how many years you can wipe off your home loan and how much interest you can save.
How to make more repayments on your home loan
Paying the minimum amount on your home loan will virtually guarantee that it will be with you for 30 years. Many people will never ever pay off their home loan. Whatever part of your disposable income you can comfortably afford to pay into your home loan should be placed there. Reducing this debt as soon as possible is a pathway to building wealth.
Beyond earning more money there are also other ways to make extra repayments when the budget is tight.
Take your monthly repayment and divide it by 2 and pay this amount into your home loan fortnightly. This strategy gives you an extra month’s worth of repayments every year with a change you probably won’t even notice.
If your pay cycle is weekly, take your monthly repayment and divide it by 4. Pay this amount into your home loan every week and again you’ll get an extra month’s worth of repayments on your home loan with a change you probably won’t even notice.
Interested in speaking to an expert home and investment lender? Contact Jeff Suter on 0439062771 today.
Eliminate all other consumer debt like credit card debt, personal loans and car loans.
If you have to have these, make them as small as practical and pay them off quickly. This gives you much more disposable income to put towards paying off your home loan compared to someone who is paying interest on a credit card every month and a car repayment of $2000 per month. If your extra repayments each month can be hundreds or even thousands above the minimum repayment you’ll go a long way to owning your home in less than 10 years.
Understand How Interest Works And You’ll Pay Off Your Mortgage Faster
Interest is calculated daily on the outstanding balance.
Because interest is calculated daily, the sooner you can make extra repayments the bigger the impact you will make on the amount of interest charged.
If you’re paying less interest, more of your repayments are going towards paying off the principle debt. This in turn means less interest is charged meaning you will pay your home loan off faster again.
Over the life of your loan your extra repayments have a bigger and bigger benefit, compounding over time.
Have an offset account and park extra savings there to lower interest
Saving for a holiday or something else? An offset account is a great place to park savings that you intend to use. The balance in your offset will act like it is on your home loan “offsetting” the balance. So on a $750,000 home loan, if you have an offset balance of $50,000 – your interest will be charged as if your balance was $700,000. The interest saved will always be higher than what you would earn if you have your money in a term deposit.
Final Tips To Own Your Home Faster
When interest rates go down don’t cut your repayment (and check your bank didn’t automatically cut your repayment). This is actually the time you get the biggest bang for your buck if you can pay more.
Leverage your good habits and grow them over time.
Got a pay rise? Add some of it towards your extra repayments. Receive a commission or a bonus? Do the same and put some of that towards owning a little more slice of your home.
The easiest, most pain free way to pay off your home loan faster is to pay a set extra amount above your minimum repayment every time. You’ll be amazed what difference even an extra $50 a fortnight makes over the life of your loan.