How to pay your home loan off sooner

A home loan will be one of the biggest debts that anyone will have in their lifetime but there are ways to pay it off sooner and help free yourself of years of debt and repayments.

So, how do we pay off our mortgage quicker? Let’s investigate a few ways to set your loan up right to work for you and pay off your home loan sooner.

Get started with the right home loan

When shopping for a home loan lender, you may be tempted to get a bigger loan with generous offers being presented from the banks. But just because you can, doesn’t mean you should. Avoid this temptation as it can quickly set you up for failure with higher repayments and higher insurance costs due to stretching your budget more than you can afford especially over the next 20-30 years. So how do you avoid this trap?

Ensure the total loan repayments on your home loan is less than 33% of your total income to avoid income stress. Take the time to calculate your affordability especially before shopping for a home loan so you understand the number of mortgage repayments and how this will impact your lifestyle once you have secured a mortgage.

If the repayment percentage is too high of your total income, consider lowing your budget for the property you wish to buy which will help to keep the mortgage repayments affordable. This will give you the room to pay down your mortgage quicker as you’ll have the extra cash to do so when you can.

Add extra cash to your offset account or to pay off your loan

Work bonus? Birthday cash? Increased income? Add it to your offset account or directly pay off the principal of your home loan. Every little bit of contribution helps and if you’re using an offset account with a redraw option, you can draw it back out if you need it. Both offset and redraw features allow you to use extra funds to reduce the amount of interest you pay, but which one is better?

Offset accounts work like high-interest savings accounts that are linked to your home loan. The money sitting the offset account means you’re not paying the full interest percentage on your mortgage. Over the life of your loan, this could save you thousands and work towards paying your principal loan quicker.

The benefit of having the redraw feature on your home loan allows you to make extra repayments towards your loan but also allows you to withdraw these payments anytime you need it. If you don’t touch these contributions to your redraw facility, it will help to pay off your mortgage faster.

Be sure to work with your lender to understand what feature is right for you as there may be fees and tax implications associated with both options.

Revisit your home loan often

One of the easiest mistakes you can make is “setting and forgetting” your home loan, especially since the lending markets and products can change and so too can your circumstances which could mean your current loan is no longer right for you.

Take the time once a year to do a health check on your current loan and utilise services offered by mortgage brokers to help ensure you’ve got the best deal possible for your situation.

This could mean changing lenders, staying at a variable rate home loan, or changing to a fixed or even a split rate mortgage. There is a wide range of lenders in Australia who can offer you a range of very competitive home loans, so don’t be scared off from changing or switching your mortgage around.

By staying on top of your home loan and shopping around for a better one could help you to save thousands of dollars in interest charges and potentially shorten the lifespan of your loan.

Next steps

With a little bit of time and effort, you can make your home loan do the heavy lifting when it comes to knocking years of the life of your mortgage. Don’t forget to use your mortgage broker and your lender to get the best loan possible and to also help you during your annual review. If you have any questions, don’t hesitate to comment below or reach out to us on our Facebook page.