Tricks for paying off your home loan quicker
The cost of living is on the rise in Australia and many households are searching for the most effective ways to ease pressure on the domestic budget.
A simple way to do so is reduce the amount of interest you pay on your home loan.
Whilst the majority of home loans have repayments spread out over a 25 – 30 year period it is possible, depending on the flexibility of your mortgage, to reduce the period of your repayments and considerably decrease the amount of interest paid.
Here area couple of tricks to help reduce your interest payments:
Consolidate your debts – if you have multiple debts you should consider rolling them all into your home loan. Home loan interest rates tend to be lower than the interest rates on personal loans, credit cards and car loans. Your primary financial institution may also offer reduced interest rates if you roll all loans from other institutions into one account.
Make additional repayments – the best way to reduce the total interest paid on your home loan is to make additional payments. Something as simple as changing your payment schedule from monthly to fortnightly translates to one extra fortnightly payment each year. Whilst some loans may have restrictions on additional payments, you should also consider making additional one-off payments where possible.
Consider the possibility of further rate rises – if you are financially stable you should consider making repayments at a higher rate to prepare for possible future rate rises. Whilst this will put you ahead of the payment schedule, if rates fall your increased payments will continue and your loan will be paid off faster than expected.
Get more out of your surplus cash – every extra dollar you pay off your principal is a dollar you’re not paying interest on. Consider using your home loan as your account for savings and earn the extra interest. If you need to take back extra payments, most standard variable home loans that have redraw facilities will allow you to do so.
Save interest with offset accounts – savings held in offset accounts are subtracted from your outstanding loan amount each month so interest is charged only on the net amount. Interest paid to an offset account is not taxable, meaning you won’t have to pay tax on your gains.
Do you have any other tips to add? Leave a comment below.