If you are like most people then Paying Off Your Home Loan or mortgage sooner rather than let it run the full term is somewhere along your priority line.
Whilst there is no “Magic” trick to this, there are a number of small behavioural changes you can do to minimise the amount of interest you pay your lender, and pay off your loan early. Basically it’s all about the maths!
The first behavioural change is the frequency by which you pay your repayment. Paying weekly or fortnightly instead of monthly will reduce the amount of time taken to pay off your mortgage, even if you don’t pay any extra
Pay Extra – this is the number one way to reduce the time and interest you pay on your loan, to put this in perspective if you double your minimum repayment amount on a 30 year mortgage term then you will pay off your loan in between 10 and 11 years and save over 60% of the interest you would otherwise pay!
Pay your savings into your mortgage and have it available as redraw – most of us like to have some funds in the bank, the rainy day savings account that we don’t use except for emergencies. This account would receive minimal interest and even then you get taxed on the interest earned. By paying the savings into your loan and having it available as redraw you reduce the amount of the loan and therefore the interest payable yet you still have access to the funds should that emergency arrive
Offset accounts – this is an account where the funds in that account offset the balance of the loan and as the interest is calculated on the loan balance less the amount in the offset account then you pay less interest and therefore you will pay out your loan sooner. Whilst this type of arrangement is beneficial, check the interest rate on the loan, as quite often offset accounts are only available on some loan accounts that may have a higher interest rate than others on offer
Interest rate – This is an obvious one but more than 70% of mortgage holders couldn’t tell you what rate they are being charged and if the rate was competitive in today’s market. The interest rate determines the cost of the loan. It then goes that the lower the rate the lesser the cost. Most lenders offer lower rates to attract new customers and therefore it pays to check every 2 or 3 years and see what rate you are being charged and if it is competitive in the market, if it’s not it doesn’t cost much to change lenders and the process is not as daunting as you may think, talk to us and we can determine if you could benefit from changing lenders
Paying off your Home Loan or Mortgage sooner should rank in your priority list but that will depend on your circumstances and the stage of life that you are at. We can assist in formulating a plan, and are happy to help, Contact Us to see how much you can save and how soon you can own your property.