Paying your Home loan off faster than the 30 year term is something all home owners should strive for. If you were to take a full 30 years to pay off your loan you may find you are actually paying your house off TWICE with the interest payable over a 30 year term . Paying your loan off sooner keeps money in your pocket and could see you moving towards a strong financial future sooner.
So to help you move towards paying your Home loan off faster we have listed some basic, yet powerful tips to help chip away at your loan faster without much effort!
Utilise your offset account
An offset account is a simple and often free way to reduce the interest you pay on your loan monthly! An offset account is basically a day to day account or savings account which can be linked to your home loan. The bank then views this money as though it has been paid onto your home loan, so when they calculate your interest charges they will take into consideration any funds held in an offset account.
An offset account is a simple and often free way to reduce the interest you pay on your loan monthly! An offset account is basically a day to day account or savings account which can be linked to your home loan. The bank then views this money as though it has been paid onto your home loan, so when they calculate your interest charges they will take into consideration any funds held in an offset account.
So for example- Say your home loan is $100,000 and in your offset account you hold $10,000. The bank takes the $10k in your offset account off the $100k owing, therefore charging you interest on $90,000 rather than $100,000.
Depending on your interest rate you could save hundreds or even thousands of dollars a year in interest using this method! Now not everyone will have a large amount of money in their offset account however every little bit will count and simple deposits of your weekly or fortnightly wage will help to reduce your interest payable.
Depending on your interest rate you could save hundreds or even thousands of dollars a year in interest using this method! Now not everyone will have a large amount of money in their offset account however every little bit will count and simple deposits of your weekly or fortnightly wage will help to reduce your interest payable.
Don’t take repayment reductions
It may happen that you receive a letter from your lender telling you that you are ahead on your repayments due to interest rate changes or other circumstances and as a result you now have the option to drop your minimum repayment. It is of course tempting to take them up on this offer however if you are serious about getting ahead on your loan resist the urge and keep your repayment higher! Making those extra repayments and keeping ahead is a great way to clear that loan off much sooner than the 30 year term you likely took. Check out our “How long to repay calculator” to see what a higher repayment could do to your loan term!
It may happen that you receive a letter from your lender telling you that you are ahead on your repayments due to interest rate changes or other circumstances and as a result you now have the option to drop your minimum repayment. It is of course tempting to take them up on this offer however if you are serious about getting ahead on your loan resist the urge and keep your repayment higher! Making those extra repayments and keeping ahead is a great way to clear that loan off much sooner than the 30 year term you likely took. Check out our “How long to repay calculator” to see what a higher repayment could do to your loan term!
Bonus, Overtime, Commissions
Put them on your loan! I know it’s tempting to go out and buy yourself something nice with your (no doubt) hard earned extra pay, however a lump sum like that could go a long way to paying your loan off much quicker! Paying above and beyond your minimum repayments is one of the best ways to pay your loan off quicker! It is also the most simple and common sense approach!
Put them on your loan! I know it’s tempting to go out and buy yourself something nice with your (no doubt) hard earned extra pay, however a lump sum like that could go a long way to paying your loan off much quicker! Paying above and beyond your minimum repayments is one of the best ways to pay your loan off quicker! It is also the most simple and common sense approach!
Change your payment frequency
If you don’t have an offset account with all your funds linked you can do this simple trick which will boost how much you are paying. Rather than monthly repayments, change to weekly or fortnightly. The trick here is to take your monthly repayment and half or quarter it, rather than taking the actual or minimum repayment. By doing it this way you actually end up paying additional funds off the loan. You can see how this works by calculating as follows. Eg- Your monthly repayment is $2000. Which, if paid monthly means you pay $24,000 per year. To pay fortnightly, you divide the monthly repayment by two, and every two weeks you pay $1000 to your loan. There are 26 fortnights in a year which means over 12 months you pay $26,000 off your loan by doing it this way. An extra $2000 or, one whole payment in front over a 12 month period!
Utilize interest free periods on credit cards
I add this in last as it is an “Exercise with Caution” tip. I would only recommend this strategy if you are good with finances and don’t see a credit card as a means to a “shopping spree”.
Alot of home loan packages offer an annual fee free Rewards credit card. Majority of these cards offer an interest free period meaning if you pay the card back in full at the end of the statement cycle you will avoid paying interest. The idea behind this method is as follows.
You make all of your normal purchases using the credit card- food, bills, fuel etc (All things you would have bought anyway even without the card). At the end of the month you pay the credit card back in full and, by doing this, you avoid paying interest. During that month while you have been making these purchases interest free the cash you would have usually used for these day to day expenses sits in your offset account saving you interest on your home loan. It’s using the banks money at no charge to you, while also saving interest on your home loan PLUS if a rewards card you are making rewards points to redeem on flights and vouchers at the same time! A win win!
I add this in last as it is an “Exercise with Caution” tip. I would only recommend this strategy if you are good with finances and don’t see a credit card as a means to a “shopping spree”.
Alot of home loan packages offer an annual fee free Rewards credit card. Majority of these cards offer an interest free period meaning if you pay the card back in full at the end of the statement cycle you will avoid paying interest. The idea behind this method is as follows.
You make all of your normal purchases using the credit card- food, bills, fuel etc (All things you would have bought anyway even without the card). At the end of the month you pay the credit card back in full and, by doing this, you avoid paying interest. During that month while you have been making these purchases interest free the cash you would have usually used for these day to day expenses sits in your offset account saving you interest on your home loan. It’s using the banks money at no charge to you, while also saving interest on your home loan PLUS if a rewards card you are making rewards points to redeem on flights and vouchers at the same time! A win win!
Situations that this would not work in is if you don’t have all that extra money in your offset account, or if you end up buying up big on the card with things you didn’t actually need! As mentioned- it is not for everyone! Speak to your bank or Broker about your card options if you believe this option may be suitable to you!
Seeing a pattern? All these options point to less interest.
More money in your loan or offset, a lower interest rate- all these things mean you will be charged less interest when the lender comes collecting each month. Less interest means that more of your repayment is reducing your actual loan rather than just paying the bank back interest. Paying a loan off is not an overnight feat- however making conscious decisions to clear that debt faster is going to put you one step ahead in the long run!As your North Brisbane mortgage broker we can help you move towards paying your loan off sooner!
More money in your loan or offset, a lower interest rate- all these things mean you will be charged less interest when the lender comes collecting each month. Less interest means that more of your repayment is reducing your actual loan rather than just paying the bank back interest. Paying a loan off is not an overnight feat- however making conscious decisions to clear that debt faster is going to put you one step ahead in the long run!As your North Brisbane mortgage broker we can help you move towards paying your loan off sooner!
Contact us today to discuss how we can help!
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