We all dream of owning our own home outright, but 30 years (or more!) of repayments can seem like a very long time. The good news is, there are a few ways to potentially pay off your home loan a little bit faster, and most of them don’t require you to win the lottery or inherit vast sums of money. When you take into account that you’ll pay more interest the longer your home loan continues, even shaving a year or two off your home loan is likely to be very well worth it.
Here are five simple things you may be able to do that could help you avoid paying your home loan for any longer than you have to.
1. Use an offset account
If your home loan offers the option of an offset account, you can use it to reduce the amount of interest you pay on your loan. An offset account works by offsetting the balance against the interest on your home loan. You still have access to the funds whenever you need them, but your interest payments will reduce as long as you have a positive balance in the account.
For example, if you have $30,000 in your offset account and your home loan is $400,000, you will only pay interest on $370,000 as long as you keep the $30,000 in the offset account. Be aware that offset accounts are not available with every type of home loan, and they won’t suit every borrower. It can be a good idea to check if the savings you can realistically achieve using an offset account are higher than potential expenses due to fees or higher interest rates on loans that offer this feature.
2. Switch to fortnightly repayments
If you’re currently paying your home loan off in monthly instalments, switching to fortnightly repayments could be one way for you to pay it off faster. It might not seem like much of a difference, but because there are 26 fortnights in a year, switching from monthly to fortnightly means you’ll end up making the equivalent of an extra month’s repayment each year.
3. Make extra repayments on your loan
If your home loan allows extra repayments, this is a great way to pay off your loan sooner. The more extra you can put into your home loan earlier, the less interest you will accumulate and the faster you will be able to pay it off. If you get an annual bonus or a tax refund, putting it back into your loan can be a great way to save some money and pay your loan off faster, without affecting your day-to-day cash flow.
Not all home loans allow for extra repayments, and some will charge you a fee if you make additional repayments. So if you’re thinking about doing this, it’s a good idea to make sure the home loan you have does allow for additional repayments and check if fees apply. For example, if you’re on a fixed rate vs a variable rate home loan you’re less likely to be able to make extra repayments.
4. Find out if you’re eligible for an interest rate reduction
If you’re on a Bluestone home loan and you have a history of making your repayments on time, you might be eligible for an interest rate reduction. Even a relatively small reduction in your interest rate can add up to big savings and help you pay off your home loan quicker.
5. Opt for a principal and interest loan
The majority of home loans are principal and interest, meaning you pay off the original amount borrowed as well as the interest payable on that amount. With an interest-only loan, you will only pay the interest, leaving the principal amount you’ve borrowed untouched. The repayments might be lower during the interest-only term, but because you’re not paying off the original amount you borrowed, your debt will not go down, and you’ll end up paying more interest over time.
Paying off your home loan sooner can get you closer to your dream of owning your own home outright. To learn how to apply these strategies to your financial situation, we’d always recommend speaking to a financial advisor or other qualified professional.
