How to pay off your home loan sooner

7th of February 2012 | by RateCity Staff

The more money you repay into your home loan, the faster you will pay it off and the less overall interest you will pay.  

While you can use RateCity’s home loan repayments calculator to compare some of the best mortgages available in the market, you can also use the calculator to evaluate the extra savings generated by different strategies including making additional repayments, making lump sum repayments and shortening the length of the loan. All these methods can potentially save you thousands of dollars in interest over the life of the loan, if not more!

Additional repayments

Making extra repayments towards your home loans, no matter the size of the loan, can make a big difference to the amount of interest you will pay in the long term. By using RateCity’s home loan payments calculator, you can compare the difference small payments can make to a long term loan. If your budget allows it, start making payments from day one as the impact on the interest is greater the earlier you begin.

Lump sum payments

Paying a lump sum of cash directly into the loan, such as a salary bonus, can also reduce the amount of overall interest you pay over the life of the loan.

A smart strategy is to pay your annual tax refund (if you get one) directly into the home loan. You won’t miss what you never had and if an emergency arises where you need these funds, many lenders offer a redraw facility that will allow you to access the money. Alternatively, deposit the money into an offset account, where possible.

Shorten the length of the loan

One of the great features of a home loan payments calculator is the ability to experiment with repayments across different loan terms. The standard loan term in Australia is usually 25 or 30 years; however, by taking out a loan for a shorter term, say for 20 years, you can save thousands of dollars in overall interest repayments. Be aware that the shorter the home loan is, the higher the regular repayments will be.

Compare home loan interest rates for some of the best mortgage rates and check out RateCity’s home loan payments calculator. With a list of thousands of home loans offering flexible payment options, there is bound to be one that suits your needs.