5 ways to kill your home loan sooner
Added on by Etairos Accounting
Homeowners continue to enjoy record low interest rates as The Reserve Bank of Australia keeps its cash rate on hold. This has allowed borrowers to get even further ahead on their mortgages and pay off their homes sooner.
Here are five ways to kill your home loan debt by maximising record-low rates.
1. Pay More
You don’t need to be Einstein to work out the best way to reduce a mortgage is to pay more than you have to and this is indeed the number one mortgage killer. Any extra money you can put into your home loan above the required repayment amount is going to reduce the principle loan amount and therefore reduce interest charges.
A $300,000 mortgage with a 25 year term at 4.5 per cent requires principle and interest repayments of around $1,667 a month. If you could manage to pay an extra $300 a month to your mortgage you could save around $54,500 in interest and pay out your loan off 6 years sooner.
2. Refinance
There’s a whole bunch of reasons people choose to stick with their current lender but don’t let laziness be one of them. Don’t be afraid to switch to a new lender if you can get a deal that’s going to benefit you in the long run. A half a per cent difference in the scenario above saves $85 a month and there are rates, offers and combination loans that can save you even more!
3. Get an offset account
An offset account is a day to day transaction account that is linked to your home loan and is one of the easiest ways to help you reduce your loan servicing costs.Offset accounts work in different ways
- Some reduce the balance in the loan account before interest is calculated
- Others credit the interest from the offset account to the home loan account
Either way they achieve basically the same thing – help you use your day-to-day money to pay your home loan sooner.
4. Reduce your fees
It’s vital to make sure you aren’t paying too much in monthly or annual fees and charges. These vary from lender to lender and loan types. Usually they provide some benefit to the borrower like loan features, access to money or an interest rate discount and while they can be crucial to providing the lowest rate possible, they generally only benefit larger loan amounts. If your loan is under $200,000 it’s worth looking at a using loan product with a ‘basic discount’ rate.
5. Pay More often
Sometimes cash flow can constrain you but if you are paying your home loan monthly you’re costing yourself money. If your salary or wage cycle allows it, try paying your home loan more frequently, like weekly or fortnightly.
Try doing this:
Divide your monthly repayments in half and pay the halved amount each fortnight. For instance, if you pay $2000 a month now, pay $1000 each fortnight instead.
This means you will make 26 payments in the year totaling $26,000 instead of $24,000. This little device can save you thousands over the term of your loan and have you debt free sooner.
If you'd like help getting on top of your mortgage don't hesitate to call Etairos. We're expert in helping customers develop strategies to reduce debt and build wealth.
Call now to pay your home loan sooner
