How to pay your home loan off quicker
So you’ve bought your first home, moved in, and now you’re coming to terms with paying it off for the next 30 years.
Well, what if you could pay your mortgage off faster, without feeling the pinch?
It’s no secret that you can save a great deal of money by figuring out how to pay off your loan sooner. With a few simple tips, financial freedom is a lot closer than it appears.
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Choose the right loan
The question of variable or fixed is an important consideration when thinking of paying your loan off early. While fixed rates can keep you at a lower interest rate they might also prevent you from making additional repayments. A fixed rate might mean more fees for those trying to pay their loan off early.
Variable rates, by contrast, are often more flexible and don’t usually restrict additional repayments.
Whether you have opted for a variable or a fixed rate it’s important to be certain of the terms surrounding repayments in your loan agreement as they can vary widely from lender to lender and even product to product.
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Make more frequent repayments
Switching your repayments from monthly to fortnightly may not seem likely to make much of a difference, but it gives you essentially an extra months worth of repayments each year. You will likely find that switching to a fortnightly budget will make little difference to your budget, but a big difference in the long run.
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Consider refinancing
The mortgage market can change rapidly; what was a good deal when you got your loan isn’t necessarily a good deal now. If you’re on a variable rate, or a fixed that’s close to ending, refinancing your loan can ensure that you’re on the best rate and have the best features.
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Budget wisely
Having a well-planned budget seems obvious, but this important factor is where many homeowners trip up in their plans to own their property sooner.
Putting as little as an extra $50 toward your mortgage each month can really add up over time.
Make sure your budget is smart, sustainable, and realistic. Knowing where you stand and what you can afford will help you put more money toward your loan without having to give up all luxuries.
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Keep your repayments steady
Just because interest rates have dropped doesn’t mean your repayments have to. If you’re lucky enough to see a considerable drop in interest rates during your loan term keep repaying your loan at the same rate. You’ll end up paying it off a whole lot faster without feeling the difference in your budget.
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Be smart about debt
Whether it be credit cards, car loans, or other short term finance, keeping your other debts under careful control can free up more money than you may initially realise. Non-mortgage finance comes with significantly higher interest rates, leading you to spend money on interest that you may otherwise be able to put toward your loan.
Consider consolidating debt, using re-draw or an offset account on your mortgage to make the same purchases with the benefit of a much lower rate.
While increasing the amount owing on your loan might seem counterintuitive at first, you’ll actually find yourself saving a good amount of money.
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Take advantage of offset
An offset account can be a great way to reduce the interest you pay on your loan and help you pay the account off quicker.
If you open a 100% offset account you can effectively reduce the interest you will be charged each month; for example – if you have a loan amount of $450,000 and an offset containing $50,000, you will only be charged interest on $400,000 of the loan amount. The more money you put into your offset the more you can save on interest.
