With home loan repayments being one of the biggest financial pressure points on a family’s yearly budget, it pays to do your due diligence and find out how you can reduce your mortgage debt as quickly and effectively as possible. Read on for five simple techniques you can use to slash your home loan repayments over the coming years.
Make additional repayments
One of the quickest ways to put a dent in your home loan is to make additional repayments as often as you can. Apart from giving you a buffer if something unforeseen happens, making extra payments will reduce the principal loan amount, the length of the loan and the amount of interest paid over the life of your mortgage. Any time you receive a lump sum that you can pay off your loan – such as a tax refund, yearly bonus or share dividend – put it straight into your mortgage and save yourself some interest. However, do keep in mind that some fixed rate loans have restrictions on the amount that you can repay, so check the terms and conditions when organising extra repayments.
Pay every two weeks instead of monthly
While at first it might not seem that changing your mortgage repayments from monthly to bi-weekly would make a big difference, this is actually a proven strategy to save substantial money over the years. Due to the set up of the calendar, by switching to payments every two weeks you actually end up making additional repayments each year (equivalent to paying 13 months rather than 12) and will accrue less compounded interest on the loan each period. Over a 30 year loan this can actually have you paying off your mortgage around two and a half years earlier.
Shorten the term of the loan
One of the simplest ways to slash the cost of your mortgage is to pay it off as quickly as possible. The longer the loan, the higher the overall cost will be once the extra years of interest are factored in, so if possible choose a shorter loan period. For example, by paying off your loan more quickly and putting an extra $25 per week into a $300,000 mortgage over a 25 year time period (set at a rate of say 7.5%), you will actually cut 2 years and 10 months off the life of the loan and save yourself a massive $19,000 in interest.
Get an offset account on your mortgage
Setting up an offset account on your loan is another proven tactic to substantially reduce the amount of interest that accumulates. Using the offset account as a savings fund means that interest is only charged on the balance of the loan once your deposits are taken into account – this can make a big difference in the amount of total interest paid over a standard home loan period.
Refinance your home loan
If you are not happy with your current loan agreement, start shopping around for a new home loan with Mortgage Choice. Alternatively, don’t be afraid to ask your lender for a lower rate. You might be paying a premium for a loan with extra features that you just don’t need, or be paying excessive fees, so it’s essential that you keep an eye on the options that are available to you.
Photo by nikcname