Are you looking to pay off your home loan faster? The good news is that you don’t necessarily need to scrimp and save to do it.
From choosing the right loan to leveraging your savings to depositing your change, you could repay your home loan sooner than you think. Here are five easy ways to repay your home loan sooner – and save on interest costs – without affecting your lifestyle.
5 professional insights to help pay off your home loan
Here are five ways to repay your home loan sooner – and save on interest costs – without affecting your lifestyle.
- Make sure your loan is the right one for you
Before signing on the dotted line, make sure your loan has the flexibility and features you need. Variable-rate loans tend to be more flexible when it comes to early repayment, but if you have a fixed-rate or interest-only loan, check with your lender about any fees or charges associated with paying off the loan early. As these fees can run into the thousands, there’s no point paying off a loan faster if it’s only going to cost you more money.
Make sure your loan has the flexibility and features you need.
- Make payments more frequently
Making your mortgage payment fortnightly instead of monthly is one of the easiest and smartest ways to reduce both the length and total cost of your loan. How? By paying your mortgage fortnightly, you’re actually adding an additional payment every year. That one extra payment may not sound like a lot, but it can really add up over time.
For example, with a $300,000 loan at 5.5% for 30 years, making fortnightly instead of monthly payments could shave more than five years and a whopping $62,255 from your loan.
That extra payment can really add up over time.
- Put any lump sums you receive into your mortgage account
Tax refunds, inheritances and other windfalls are a pain-free way to achieve home ownership sooner – so think twice before booking that luxury holiday.
Using the previous example of a $300,000 loan, a one-time lump sum payment of $20,000 in the fifth year of the loan could reduce your loan term by three years and six months, and save nearly $52,000 in interest – enough for multiple trips anywhere in the world.
- Keep your payments the same when interest rates drop
When the interest rates drop many mortgage holders consider lowering their payments and cashing in. A more beneficial approach is to keep your payments the same, or even pay a a little more.
Both these options could help you pay off your home loan sooner and save on interest in the long run.
For example, if the interest rate on your $300,000 30-year variable-rate loan drops to 5% from 5.5%, your monthly payments will change from $1703 to $1610. So, by keeping your payments the same, you’re effectively adding an extra $93 to your total monthly payment (or $1116 a year). The bonus is that if you’ve been paying the same amount every month, you may not even notice it.
- Don’t forget the small-scale strategies
And last but not least, small-scale strategies like collecting any loose change you have or making your own cappuccinos to put extra money towards your payments can pay huge dividends down the road. An extra $50 towards your payment each month could save you tens of thousands of dollars in the long run.