Things you can do NOW to pay off your home loan faster
29 July 2016 MO'R Mortgage Options
With interest rates at record lows, NOW is the perfect time to focus on paying down your home loan.
If you’re serious about getting ahead on your mortgage, here are 5 things you can start doing right away.
1. Secure the best rate you can
Is your lender giving you the best deal they can? How do you know? The home loan market is fiercely competitive and if you established your mortgage a few years ago, there’s a good chance your current lender is offering a better deal to new clients and hasn’t explicitly extended the same offer to you.
in light of the RBA’s decision to cut the official cash rate earlier this month, we’ve seen some lenders cut back on the pricing discounts they’re offering. However, even a small discount is worth it and you can’t lose anything by asking. We’ve just helped one client negotiate a discount on their existing 530K home loan, which will potentially save them $2,120 p/a in interest. We might be able to so the same for you – just give us a call.
Alternatively, if lots of things have changed since you established your loan, it might be time to review your entire loan structure. If there’s a better home loan out there for you, we’ll find it!
2. Take advantage of loan features available to you
For some clients, a basic loan with the lowest possible interest rate is the most suitable for their situation, whilst others benefit more with a professional package. Using an offset account in conjunction with a credit card (you need to be paying off the full balance at the end of each month), can be a great way to reduce your interest costs and your net debt.
Make sure you’re using the features that come with your home loan – because you’re likely to be paying for them (by way of account keeping or annual fees). You also want to make sure you’re using loan features properly. If you want a reminder about how offset accounts can work to your advantage, you can read all about them here.
3. Pay as much as you can into your home loan (or offset account)
If you have a variable rate loan, your minimum monthly repayment is likely to have fallen as a result of the recent interest rate changes.
This is great news because you incur less interest. But what happens if you continue to pay the same repayment as before the rate drop? You will get ahead on your home loan!
In fact, if you can manage to pay more than that, do it! The more you pay off in the early years, the faster you reduce the principle amount and therefore the more interest you save over the long term.
You might also want to think about using tax refunds or other windfalls (if you’re lucky!) to pay down your home loan.
4. Pay as frequently as you can
Interest is calculated on the net debt you owe to the lender. This means any time you make a repayment that reduces the principal loan amount (even if it’s by a tiny amount), you are reducing your interest costs.
So if you’re serious about paying off your loan faster and saving interest, fortnightly repayments might be the way to go.
5. Commit to the end result
It’s just like any other goal. If you don’t make the decision to save yourself interest and pay down your home loan, it won’t magically happen by itself.
Think about setting up a recurring payment each month to make extra repayments to your loan. That way, the additional payments will happen automatically without you even realising.