Congratulations! You’ve just made one of the biggest decisions in your life and bought a new home. Now that you have your first home loan don’t be scared, we’ll show you 5 easy steps to take to pay it off faster.
1. Ring the bank every six months.
If you see your banks competitors offering a better rate – use this information as a negotiating tool. You’ve got to ask – if you don’t ask, you don’t get. It’s absolutely worthwhile ringing up your bank and pushing for a better rate. Check whether your home loan rate is competitive and know what the competition is offering. Canstar says the cheapest standard variable rate is 3.54%, the most expensive is 5.49% and the average is 4.20%.
2. Make payments more often.
Switch from monthly to fortnightly repayments. This will have roughly the same impact on your budget as one monthly repayment, but because there are 52 weeks in a year, fortnightly repayments will result in 13 full-sized repayments a year instead of the normal 12. You’ll be making an entire extra repayment every year without having to scrounge around for the extra money. If you have a 30-year $200,000 mortgage at an interest rate of 5%, making fortnightly repayments would save you $34,328 in interest and allow you to pay off the loan almost five years early.
3. Increase your repayments.
Paying more than required is the simplest way to pay off your home faster. Just adding $50 per week can save roughly four years on a typical loan.
4. Use a 100% offset account.
Plenty of loans these day allow you to attach an offset account – but make sure it’s a 100% offset account. An offset account means that any money sitting in this account will reduce the amount of interest you pay on your loan. Getting all your salary or wages paid into the offset account is the easiest way to maximise your offset accounts effectiveness.
5. Understand your loan and what it is you’re paying for.
People often pay higher annual fees for extra items they don’t need, (like credit cards) as part of a “package” and that money could be better spent on your actual mortgage. The loans ‘comparison rate’ is the key to comparing loans, as this takes all of the extra hidden fees and charges into consideration, rather than just looking at the interest rates so you are comparing apples with apples.