The goal of paying off your home loan as soon as possible is beneficial for various reasons, namely in that it can save you thousands of dollars on interest and avoid the risk of foreclosure.
Plus, the freedom of being mortgage-free means you can focus your finances on your children’s education, your retirement fund, or that dream overseas trip.
Here are some strategies to consider if you want to learn how to pay off your home loan faster.
Make Extra Repayments Towards Your Home Loan Balance
Extra repayments are ones you make over and above the monthly payments on your mortgage. This lowers the interest you pay on your mortgage and reduces the loan length, saving you money over the loan term.
How to Pay Off Your Mortgage Sooner with Additional Repayments
If you have the capacity to make additional repayments, there are some steps to take:
- Contact your lender and discuss whether your home loan has the function of making extra payments. Some home loans don’t have this feature and will require you to set it up.
- You will need to check what charges apply. Some lenders charge upfront costs, while others allow you to divide the payment into smaller amounts.
Make Higher Repayments
You must pay interest on the set amount you agreed with your lender as your monthly repayments.
Even if you pay more than that amount, your home loan interest rates remain the same. If you continuously make higher repayments, you will pay less total interest over the life of your loan, and you will pay off the balance quicker.
If you would like to make higher monthly repayments, you should contact your financial consultant to discuss this option.
Variable Versus Fixed Interest Rates
Fixed-rate loans are often considered as an option because they offer borrowers a set interest rate throughout the loan’s duration, making it easier to budget for your monthly repayments.
However, there are some downsides to fixed-rate loans, including the fact that you often aren’t able to make extra repayments during the fixed period without having to pay additional fees and charges.
If you’re planning on paying off your loan early, you’ll want to look into variable-rate loans. These types of loans allow you to pay extra each month without paying an additional fee. They also give you the flexibility to increase your repayments if you find yourself struggling financially.
Utilise Your Offset Account or Redraw Facility
Offset accounts or redraw facilities can be attached to a variable rate home loan.
Using the offset account or redraw facility attached to your home loan as a savings or transaction account can be a small change that saves you money and helps you pay off your home loan sooner.
- Any money you deposit into your account is “offset” against your home loan debt when calculating interest. The larger the offset account balance, the smaller the amount you are being charged interest on. These accounts can be used as regular transactional accounts, and cash can easily and immediately be withdrawn or swiped.
- If you deposit money into your redraw facility as a lump sum over and above your monthly repayments, it accumulates and goes towards paying off your principal home loan amount. Or, you can redraw this money at a later stage.
Find a Lower Interest Rate for Your Home Loan
Paying less interest will save you money over your loan term.
It’s essential to keep in mind that every lender has different policies regarding closing costs, prepayment penalties, and other fees. Even if you find a great interest rate, you could end up paying thousands of dollars extra in fees if you choose to close early. Be sure to compare these factors, so you don’t pay more in the long run.
The Mortgage Agency Can Help You Pay Off Your Mortgage Faster
At The Mortgage Agency, we have mortgage professionals that can assess your unique financial situation and help you identify the best solution to help you be free of your home loan sooner.
To make your decision easier, we can explain the following in detail:
- Making extra repayments
- Making higher repayments
- Making more frequent repayments
- A variable versus a fixed home loan
- An offset account and redraw facility as transaction or savings account
- Home loan refinancing to get a better interest rate
Get in touch with our team, and we’ll help you save more money and achieve your financial and personal objectives.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.