top 7 tips to help you pay off your home loan sooner
20 September 2010
While a home loan will be the most expensive purchase of most peoples' lives, there are a number of steps that borrowers can take to pay off their home loan sooner.
Shop around for the right home loan
This is where it all starts. Take stock of your financial position and do your research. Compare home loans, shop around, use home loan calculators and make an educated decision as to which loan you'll select. It can be expensive to break a home loan contract, so selecting the right home loan in the first place will save you lots of money in the long run.
Get an early start
Your first monthly home loan repayment is generally due one month after settlement of your loan. But instead of waiting, you can immediately get a head start on your loan and make this repayment against your loan at settlement. That way you're paying off the loan principal as early as possible and getting ahead of the payment cycle.
Pay fortnightly instead of monthly
The default payment period for most home loans is monthly. But by making fortnightly or even weekly repayments, this actually adds up to the equivalent of 13 monthly repayments every year - that's one extra monthly repayment per annum. These extra repayments can save you thousands of dollars by reducing the both principal and term of your loan.
Keep repayments up if interest rates fall
Variable home loan interest rates have been lower over the past couple of years thanks to the global financial crisis, so it can be tempting to reduce the amount you pay off your home loan. But if you keep a certain monthly repayment amount up, you are effectively making extra repayments because you are paying more than minimum required amount each month.
Make extra repayments
This is also one of the best ways of repaying your home loan sooner. By paying down the principal of your loan, you reduce amount of interest paid with subsequent repayments. It is also best to put any extra money against your loan in the early days, as this compounds the savings over the life of your loan and can significantly reduce both the length and cost of your mortgage.
Synchronise your income cycle with loan repayments
By aligning repayment periods with the date you get paid, this maximises the amount of money available for loan repayments. Even if it's just a few days or a week every month, this can have a significant impact on the interest paid and the length of your loan.
Maximise repayments and control spending habits
One of the best ways to maximise your financial resources is for your income to be paid directly into your home loan, and then use a credit card with an interest-free period for day-to-day expenses. As long as you work to a budget with your expenses, this keeps outgoings under control while putting all you can against your home loan - saving thousands of dollars in the process.