Having a plan to pay off your home loan faster is a great way to accelerate your wealth creation and retirement plan. Exploring options to pay your home loan faster could potentially save money and time repaying your loan. Here are five ways you can get started today:
1. Fortnightly repayments
Increase the mortgage repayment frequency from monthly to weekly or fortnightly. This will produce a few extra repayments to your mortgage each year. There are 26 fortnights a year compared to 12 months. It’s basically a trick to make another month’s worth of mortgage repayments a year. Also, the interest on a mortgage is calculated daily so making more frequent repayments reduces the interest paid on the loan. This tip can save years off a 30-year loan.
2. Increase your home loan repayments
Increasing the mortgage repayment amount, even by a small amount, will take years of the mortgage. Coupled with more frequent repayments and the mortgage term will reduce further.
3. Maintain higher repayments
If the mortgage repayment reduces due to interest rate drops, then continue with the same mortgage repayment amounts. More of the repayment will pay down the principle and repay the mortgage faster.
4. Set up an offset bank account
An Offset Bank Account is an account that is linked to a loan. Instead of earning interest, as most accounts do, it rather saves interest paid on the loan. As the name suggests the account balance offsets the loan balance and reduce the balance which the interest is calculated. For example, if a mortgage balance is $200,000 and the offset account is $20,000, then the interest is calculated on $180,000. An offset account is like a tax-free investment which outperforms any savings account.
5. Review and negotiate
Legislation, the economy and lender’s offers change frequently. Over the life of your loan your personal situation changes. Make sure you regularly review your loan. It may be possible to negotiate a better deal on rates, fees etc.
If you want to explore how you can take advantage of any of these strategies, simply reach out and we can have a conversation.
