Reducing the life of your loan isn’t difficult!
There are many simple things you can do to pay off your Home Loan faster and cut years off your mortgage. Here are some tips that will help you be mortgage-free sooner than planned.
Small extra repayments
One of the most obvious ways to pay off your Home Loan faster is to make extra repayments. Depositing lump sums, such as a tax return or work bonus, will always be beneficial. However it doesn’t always take large amounts or windfalls to make a substantial difference. Planning for regular, small cash injections can have a great impact over the life of a loan.
If you repay an extra $50 a fortnight on a $500,000 loan, that saves you $32,000 of interest over the life of the loan. This will in turn save you just over two years of the loan term. That’s just a cup of coffee a day!
Switch your payment intervals
If you find that you don’t have the discipline to make extra repayments, then simply switching your payment structure can also help save years off your mortgage, as well as simplifying your finances if you are paid fortnightly.
Because there are 12 months in a year but 13 four-week cycles, by switching your payment intervals from monthly to fortnightly, you are essentially paying off an extra month per year.
Make sure you have the right type of loan
Ensuring your loan allows extra repayments without penalty will let you to make the most of bonuses or funnel small extra payments to reduce the loan principle more quickly, saving on interest immediately. An offset account will use your savings or living expenses to reduce your principle, while still allowing you to access these funds from a transaction account.
By establishing an investment loan with interest-only repayments but making the principle and interest repayment equivalent by putting surplus rental income into an offset account, any money sitting in the off-set account will help reduce the loan because interest is calculated daily but charged monthly.
Although you may have to pay extra fees for the offset or redraw account, these may well be lower amounts than the interest saved. Talking to You’re Welcome Finance is the easiest way to work out whether this option is financially sound.
Paying off your Home Loan faster isn’t difficult, however it does require financial discipline and expertise in ensuring the right loan features are in place.