- 1 Switch to weekly/fortnightly repayments, pay fortnightly or weekly instead of monthly
- 2 Make extra repayments, extra funds have the immediate effect of reducing the loan balance
- 3 Better still, open an offset account, and have your salary paid into an offset account, which is linked to your loan account
- 4 Align your salary and home loan payments
- 5 Pay your salary into your home loan
- 6 Reduce your expenses
- 7 Keep repayments up, even if interest rates fall
You don’t need to win the lottery to pay off your home loan early. There a number of wise strategies for reducing you loan balance and saving thousands in interest repayments. It’s never too late to begin, so read through some of the strategies people use.
1 Switch to weekly/fortnightly repayments, pay fortnightly or weekly instead of monthly
Mortgage interest is actually calculated on the outstanding amount a daily so the more frequently you pay, the more you will save, even if you are not paying anymore than you did previously.
2 Make extra repayments, extra funds have the immediate effect of reducing the loan balance
Every dollar you put on your repayments will reduce the principal amount outstanding and therefore the interest payable next repayment. This savings then compounds, making a significant impact over the life of the loan. Your loan’s redraw facility offers an easy and efficient way to use the value of these additional repayments.
3 Better still, open an offset account, and have your salary paid into an offset account, which is linked to your loan account
This allows you to use the surplus of your savings account balance to reduce the amount owed towards your loan.
The balance is deducted from your loan account before the interest on your home loan is calculated which means less interest is charged to your loan. Speak with your adviser about this more.
4 Align your salary and home loan payments
Align your loan repayment period with your salary payment date in order to maximise the amount you have available to pay onto your home loan.
5 Pay your salary into your home loan
An all-in-one-loan-account allows you to pay your salary directly into your loan, which reduces the principal amount owing and thereby the amount of interest charged. It acts as a combined mortgage, savings and cheque account, allowing you to access the funds you have left over and above the minimum monthly repayment amount to pay monthly expenses.
6 Reduce your expenses
Make a list of your regular weekly/monthly expenses and find a few that you can remove. Put any savings towards your home loan – remember that every dollar counts.
7 Keep repayments up, even if interest rates fall
When interest rates do come down, resist the temptation to reduce your monthly repayments to the lower minimum payment required. Maintaining the same original repayment is a simple and effective way of helping to pay down your mortgage faster.