The idea of paying off your home loan can be daunting at first. Regular payments, managing your savings account and still having money left over for social activities can be stressful. So any opportunity that can potentially help you relieve that stress sooner should be grabbed with both hands!
As always the first step is to make sure you do plenty of research before deciding on a home loan provider. The lower your interest rate, the quicker you’ll be able to pay off your loan. While it’s a good idea to ask advice from friends and family just keep in mind what might be good for them might not necessarily benefit you. You’re the one paying off your loan for decades to come, so it has to work for you!
Here are 6 tips to help you pay off your home sooner:
1. Consolidate your debts.
Along with your home loan, do you also have a personal loan or a credit card taking up debt? If so, that means you’re paying interest on all of them which will add up over time. Some banks and lenders will allow you to group all your collected debt together to help ease interest rates and fees.
2. Make bigger repayments.
Seems obvious, doesn’t it? However, when you really crunch the numbers it’s hard to understand why you wouldn’t try to make bigger repayments if you can.
Say your estimated home loan repayment is over 25 years. Adding on average 15% more to each repayment than necessary can slice years off your home loan. Years! Remember, little sacrifices now can mean big payoffs later.
3. Consult an accountant.
This isn’t just for your home loan but your finances in general.
Once you get a proper handle on your day to day expenses, it’s important to then think about your future finances and cash flow. Look into setting up an exclusive savings account, asking an accountant about using your tax return as a lump sum towards your mortgage or even setting up an investment plan. All these little decisions will add up to bigger rewards later on.
4. Don’t fall prey to introductory offers.
It can be so tempting when you hear lenders offering 6 months interest-free or pay no fees for 12 months but what that really means is yes you won’t pay any interest but what about service fees or what happens to the interest rate after the introductory offer?
Well, they have to make their money back somehow, so it’s best to check the fine print before signing up to anything.
5. Put any bonus cash onto your loan
Lump sum or extra repayments are a great way to slowly chip away at your home loan. Do you get semi-regular bonuses at work or did you receive more in your tax return than usual this year? Why not put it towards your home loan as one-off lump sum payment? It doesn’t have to be every month or even quarterly but whenever you have a little extra cash, just transfer it straight to your loan account. Another great way to do this is to save up, set some money aside every week until you have 1 month or even 2 months worth of repayments handy and then pay a big slice of it off.
6. Make your bank work for you
Use an offset account. Even better, have your weekly or fortnightly salary transferred instantly into your offset account!
An offset account is like any transaction account but each dollar in there counts against the balance of your loan so you don’t pay as much interest each month.
Essentially this means every dollar that is in the account will actively reduce the amount of interest you will pay on your home loan. For example, if you have $20,000 in your offset account and your loan is for $200,000 you’ll only pay interest on $180,000.
Any way to reduce interest and fees will always save you money!
The most important point to remember is to always set and maintain realistic goals for yourself.
If your accountant suggests higher repayments that you know for certain you will not be able to stay on top of, don’t do it.
There is no benefit in becoming so overwhelmed financially you don’t have any money left over at the end of the week for yourself. If consolidating all your debts won’t work for you, then perhaps setting up an offset account or making lump sum payments will.
Always keep in mind there are plenty of options out there that can be catered to you, do your research and most importantly don’t forget to enjoy your home!