Tips On Paying Off Your Home Loan & Saving Interest

With historically low interest rates, now is a good time to take stock of your finances. Many people want to achieve their goal of home ownership and now is as good a time as any to look at some of the measures that can see this happen sooner rather than later.

Make extra repayments

When you boil it right down, all of the strategies for paying off your loan more quickly involve making extra payments and/or more frequent repayments.
You can do this by making a one-off or lump sum repayment to your loan, or by increasing your regular repayments. There are a number of strategies for doing this. Making extra repayments whenever you receive extra income is a valuable habit. For example, when you receive your tax return put the payment straight towards repaying your home loan.

One simple way to increase repayments is to take your monthly repayment, halve it and pay that amount each fortnight. This is equal to making an extra month’s repayment every year. While you’re at it, if you can make some small lifestyle changes, like not buying your lunch, or buying one less coffee per day you can add an extra $25 or $30 per week to your repayment. You probably won’t notice the difference but your home loan will.

Offset Account

An Offset account is a deposit account that is linked to your home loan. The funds in your offset account do not earn interest. Instead the balance in your offset account is offset against the balance of your linked home loan, reducing the amount of interest you pay in relation to your home loan.

Review your loan

Is your loan still right for you? are you paying for features that you don’t use, or do you need more flexibility? Does your loan let you make extra repayments or does it penalize you for paying your loan off early? Switching to a ‘no-frills’ loan, requesting a ‘professional loan package’ or consolidating your accounts may reduce the interest rate or fees payable on your loan. Switching to a fixed rate loan is a common way for borrowers to obtain certainty in times of rising interest rates.

Know your fees

Lenders charge different fees, so be cognisant of any incidentals that may not be captured in the interest rate.

Beware of interest only

Don’t select an interest-only loan if you want to repay it quickly. always opt for principal plus interest. When borrowers “set and forget” their mortgage, they usually pay too much interest and have the debt longer than they should.
As you can see there is no secret to paying your home off sooner, you just need to make sure that you have the right loan for your situation set up in the right way.