A mortgage doesn’t have to dominate your life forever. By adopting some smart and simple strategies, you can shave years off your home loan – and own it outright sooner. Here are some tips to make that dream a reality.
Don’t just make your minimum repayment
One of the best ways to pay down your debt more quickly is by making more than the minimum repayment each month. Even paying a few extra dollars will reduce your home loan by a number of years. For example, paying an extra $50 each week on a $300,000 loan could slash over five years off the term of your loan and more than $50,000 off the total amount of interest.
Pay fortnightly, not monthly
If you make repayments fortnightly and set your repayment at 50% of the monthly repayment amount, this leads to you making one extra monthly payment a year. How it works is that while there are 12 months in the year, there are 26 fortnights, which equates to 13 monthly payments or one extra each year. This strategy offers very big gains with little pain.
Redirect any windfalls into your loan account
Receiving an unexpected payment, such as a refund from your tax return is always a pleasure. One sensible strategy is to redirect this windfall into your loan account. Even if you are planning on eventually spending this money on something else – a holiday or renovations – it makes sense to put it into your loan account and redraw it when you’re ready to use it. This way you have it working for you while you’re making other plans.
Make use of your redraw or offset facility
If your loan has a redraw or offset facility, it makes far more sense to park any extra savings here rather than in a savings account. This way you are reducing the interest liability on your loan, which is likely to be at a higher rate than you are earning on a savings account. Also, the interest you earn on a savings account is likely to be taxable, meaning you could face a tax debt when you do your annual tax return, or any tax refund will be reduced.
Have your salary paid into your loan account
If you direct all or part of your salary into your loan account (or offset account if you have one) and those funds sit there for a few extra days a month, you could potentially save several hundred dollars in interest every year. Over time this adds up to substantial savings. The interest repayment on your loan is debited at the end of each month and usually calculated daily, so you can greatly reduce the interest that you pay. This strategy also assists many borrowers in managing their expenditure. Having the amount required for loan repayments directly credited to your loan account means it’s not sitting in your everyday account tempting you to spend it!
Don’t forget you live in the present
While paying off your home early is a goal of all homeowners, don’t sacrifice everything about your lifestyle to achieve this. We do need to make changes to our lives if we want to reduce the term of the loan but don’t do it to such an extreme that you are miserable. It’s all about achieving a balance.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan
Will Keall, iMortgage’s general manager, has a wealth of marketing and business development experience gained in Australia and the United Kingdom. These include high level roles in a range of sectors such as financial services, insurance, travel and tourism, motoring and professional services.
Will played a pivotal role in the successful establishment of iMortgage. His dedication and passion for the mortgage industry have won Will the utmost respect as an integral part of the iMortgage brand.
A self confessed “numbers and brand geek”, Will calls himself a conservative investor with a long-term philosophy. He also believes it’s important to “love where you live.”
Will is a cricket and football tragic, who also enjoys running.