How Can I Pay Off My Home Loan Faster?
How Can I Pay Off My Home Loan Faster?
Considering the current situation in the Land Down Under, it’s no wonder you’re searching for the ways to pay off your home loan faster. Actually, that’s one of the soundest decisions you have ever made. Figures show that Aussies are hugely indebted in comparison to the previous decades, and it’s not a trend you wish to be following your whole life.
In 2016, an average Australian household debt was already four times larger than it was in 1988, and it only keeps on growing. Almost one million households entered the year 2018 with huge mortgage stress; 24,000 of them were in serious trouble. Even though Aussies see purchasing their own home as an imperative, they generally seem to fail when it comes to regular payments and use their credit cards for the purpose, thus contributing to the overall indebtedness. Currently, a third of the households aren’t able to cover their ongoing costs, which is a 25% rise from 2017. Bearing all this in mind, we’ve prepared a couple of techniques to avoid the debt traps, and pay off your home loan even sooner than you had originally planned to do.
While plenty of advisors out there will tell you it’s best to make payments to the bank every fortnight, why not speed up the process and do it every week? At least that’s what worked like a charm for Greg and Melinda Kerr, who shaved years off their mortgage with this simple method. As it is universally acknowledged, it’s always harder to give up a big amount once a month, than to set aside a regular sum each week/two weeks, and even add to it when the week was particularly good. While minimising your stress, these fortnight payments can help you pay off one extra month each year.
You’ve done this before, but now just redirect it to your loan repayment. Put aside those little coins you get after shopping for something in a supermarket. Bit by bit, and you’re bound to end up with a hefty sum at the end of the year. The previously mentioned couple managed to save up to $4,000 (!) a year. Just put the change into a box, and don’t think about it until a year has passed.
3% interest rate According to a study, replacing a 5.67% interest rate with a 3.64% one could save Aussie households over $160,000 for a 30-year loan term. The calculation was based on the average home loan of $371,000. Therefore, check your availability, and apply for it as soon as possible.
An offset account can do wonders for you by helping you save thousands of dollars in interest. Basically, the lender is charging you less in interest since they won’t be charging you for the interest on the total, current remaining balance of your home loan.
As well as that, if you even transfer your salary to be paid directly into your offset account, that will speed up the process even more.
Switching from IO to PI
If you can, try to switch from Interest Only to Principal & Interest repayments, as this will help you immensely. It has become quite a trend in the recent years, and for a good reason. Long story short, you’ll be paying less interest, but your cash flow will increase. Do the math, and if you are eligible for PI, feel free to switch as this will eventually save you money.
Just because you have a home loan to pay off, that doesn’t mean you should completely forget you could be adding more money to your balance. You could invest in stocks or shares, set up your own company, or find some other source of an additional income. Perhaps the home loan was just the trigger you needed to finally start doing your dream job.
Last but not the least, before taking any of these steps, study a good loan repayment guide for the extra details. Paying off your home loan may turn out to be easier than you assume, as long as you scrutinise your finances, study all the options carefully, and remain motivated throughout the process.