5 ways to pay off your home loan faster
Buying a home is a huge thrill. Successfully paying off your home loan is an even bigger achievement. While most lenders will typically give you a period of 25 or 30 years to pay it off, that doesn’t mean you need to stick with your mortgage for decades.
There are some mortgage-busting tips and tricks you can start putting in place straight away. This article explores the top five ways to pay off your mortgage and get out of debt sooner than you thought.
1. Find the lowest interest rate
The right interest rate can have a dramatic impact on the cost and duration of your mortgage.
By lowering your interest rate, you are ensuring more money stays in your pocket – not your lender’s. Record low interest rates and a hotly contested mortgage market make it the ideal time to start shopping for a new rate and lender. In May alone, the Australian Bureau of Statistics reported a 26 per cent jump in the value of refinanced mortgages.
Consider speaking to your current mortgage provider before you jump ship. They may be able to offer you a better deal before you go running into the arms of a new lender.
2. Look at your loan structure
Your loan structure matters. While interest-only loans have their advantages – such as generally lower rates of interest – they don’t allow you to pay off the principal amount of your mortgage.
Interest-only loans only apply to the interest on the total amount you’ve borrowed from your lender. These loans are usually for a limited period, so they generally aren’t a forever solution.
On the other hand, a principal and interest loan will address the debt you owe and the interest it accrues. This means you’re chipping away at the debt, and reducing the interest you’re paying, too.
3. Increase your repayments
Every little bit of savings adds up. The same can be said for paying off your mortgage. There are two ways to approach increasing your repayments: upping the amount you’re paying or increasing the frequency of your payments.
Increasing the rate of your repayments means you’re paying more than your stipulated rate. By making more frequent repayments, say fortnightly instead of monthly, you’re paying more of your loan off every year. This could end up saving you thousands in interest over the lifetime of your loan.
4. Consider an offset account
A mortgage offset account acts like a transaction account to offset the interest you have to pay on your home loan. For example, consider you have a mortgage of $250,000 at 3.5 per cent and an offset account with $50,000 in it accruing 2 per cent. In this scenario, you would only be paying interest on $200,000 of your mortgage.
This means that the more money you have in your offset account, the bigger the potential savings – helping you to pay off the loan faster. Some lenders have different fee structures attached to offset accounts, so always be sure to check the terms and conditions before you pursue this option.
5. Use your equity wisely
Not all debt is damaging debt. If you have paid off some of your home loan, you have amassed equity. By using that equity to your advantage, it could have a positive impact on your existing home loan.
Investing in an additional property rather than funneling money into your existing loan is one way to use your hard-earned equity. A well-chosen investment property allows you to produce rental income, take advantage of tax benefits and if you’re prudent, eventually see a capital gain from the property’s sale. While you may be taking on extra debt in the short term, it’s debt that has the opportunity to work in your favour in the long run.
Attack your home loan debt
Paying off your home loan is a goal worth achieving. The team at Advantage Consulting is here to help you to maximise your financial opportunities. Contact Advantage Consulting for an obligation-free chat today.
Disclaimer: This is general advice and has been prepared without taking into account your particular situation or needs. You should consider whether it is appropriate for you before acting on it.