When you’re paying back a home loan it often feels like a life sentence, and regular mortgage payments can take years to seriously chip away at your debt.
However, there are a few ways that you can speed up your mortgage repayments and pay off your loan faster.
Here are RateCity’s tips on how to save and become mortgage-free sooner:
- Increase your payment schedule
If you’re currently maying monthly mortgage repayments, you could consider increasing the frequency of your repayments, especially if your lender calculates interest daily. This will help you to pay the equivalent of an extra month’s mortgage repayments in a year.
How does this work?
If you swapped to fortnightly loan repayments, over the course of a year this will cause you to make 26 repayments, equal to 13 monthly repayments.
- The power of refinancing
Loyalty is dead, especially when it comes to fast tracking your mortgage repayments. Refinancing to a lower rate lender could not only save you thousands in interest repayments, but allow you to budget more effectively and potentially switch to a shorter loan term.
For example, Nick has a $250,000 home loan on a 30 year loan term with an interest rate of 4.59 per cent. If he switches to a lower rate loan, such as the HSBC Home Value Home Loan at 3.59 per cent, he would save over $50,000 in interest over the life of his loan.
If you perform regular financial health checks and utilise comparison tools, you can ensure that you’re paying the most competitive interest rate for your financial needs over the life of your loan.
- Add savings to your loan
If you have a good savings month, or come into some extra money, the temptation to spend it can be strong. However, putting a lump sum payment towards your mortgage can help you to pay off that loan sooner.
If Nick uses a single tax refund of $1,000 to make a lump sum payment on his $250,000 loan, this would cut $2,135 off the total loan and shorten his loan term by two months.
- Make extra repayments
If your loan permits, making extra repayments can make a tremendous difference to your home loan balance over time, helping you to fast track your mortgage. Even paying an extra $1 each day could save you thousands in long-term interest, and help you to be mortgage free sooner.
Using our example from earlier, if three years into his mortgage Nick were to add an extra $100 to his monthly repayments, he would shave three years off of his 30-year loan.