5 ways to pay off your home loan 5 years ahead of schedule


early home loan payments

Paying off your home loan over a period of 30 can seem like forever.  Whilst it is a long term commitment, here are 5 easy steps that can help you own your home sooner:

  1. Switch from monthly to fortnightly repayments. By doing this alone, a $500,000 mortgage can be paid off in 25 years and 6 months.  Taking 4 years and 6 months off your loan and $68,000 in interest savings

  2. Even the smallest extra repayment can help you reduce your loan term. By paying $25 / week extra (one bottle of wine!) you save yourself another 2 years and 3 months and another $33,000 in interest savings

  3. As interest rates are still reducing, keep your repayments at the higher rate. This has two benefits, you get in front and you have additional money sitting in your home loan and when rates start to increase you will not even notice the difference. For example if your interest rate has dropped 0.5% over the last 12 months, then this would be a saving of approximately $150 / month. If you did this, say, from year 3 of your home loan, this is then an additional 2 years and 8 months saved and another $36,838 savings in interest.

  4. Any bonuses / tax returns etc you receive, put them into your home loan too. If you receive an annual $4,000 tax return / bonus and from the first year you put this cash injection on to your home loan, this reduces your loan by another 5 years and another $87,000 in interest savings!
  5. Use an offset account. Money sitting in your offset account reduces the interest component of your repayment as the interest sitting in this account is calculated daily but charged monthly. So for every day those funds are sitting in the offset account you are reducing the interest you pay on your home loan. For example, your loan is $500,000 and you have $25,000 sitting in your offset account. You are only paying interest on $475,000 whilst your monthly repayment (assuming a rate at 4.24%) is still the same at $2,457 / month the interest charged reduces from $1766 down to $1678. Saving you $88. This, overtime, can have a big impact on reducing your loan. Bonus points if you have a credit card where all your expenses are paid from and you swipe your credit card balance in one transaction keeping your cash in your offset account– remember every dollar makes a difference!

I have seen people combine all five of these principals and this has seen clients reduce their loan term by half and from here they have then used equity to purchase an investment property and here begins the building of an empire!

Get in touch with 10thousandgirl Trusted Advisor, Nicole Cannon, of Pink Finance, here

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