Wondering how to pay off your home loan sooner? I took a look at things you can do immediately to be debt free. These are simple things that you can do, which the banks do not explain. The reason for this is that the banks receive more money, as you pay hundreds of thousands of dollars more. There are tonnes of these tips online but I thought I’d pick one, and expand this further to help you cut through the BS.
Australian home loan interest rates remain at historic lows, and the opportunities for paying off a mortgage early are better than ever. Used in conjunction with low rates, here is one extra step that can speed up loan repayments and reduce your loan balance.
Make higher repayments and make them more often (let me explain)
One of the easiest ways to reduce the balance of your mortgage is to make larger loan repayments. The minimum repayment required on a loan is calculated based on the amount owing and the current home loan interest rate. Repaying more than the minimum can cut the term of the loan and save you thousands of dollars in interest. A mortgage repayments calculator will show you what savings can be achieved. You can use the one on my website if you like.
Now let me show you what I mean by the above statement.
Say for example you had a mortgage of $500k and you took that loan out over 30 years @ 4%/annum variable interest rate. Assuming the rate stays the same for 30 years for the sake of this example, here is what will happen:
Loan Repayments based on $500k loan over 30 years @ 4%/annum = $2,388/month
NOW if you take the same repayment and start paying it weekly or fortnightly. So paying $597/week or $1,194/fortnight you will pay off your home loan in 25 years and 11 months instead of 30 years. This will also save you $56,692 in interest over time.
Let’s make it even better. Your home loan repayment is a mixture of principle and interest. If you were to start paying the principle portion of your home loan repayment in advance ($2,388 – $1,667 (interest) = $721/month paid fortnightly $360.50), you will actually pay off your home loan in 17 years and 2 months instead of 30 years.
This will end up saving you $168,726 in interest over time. Your total repayment in this scenario will be $1,555/fortnight instead of $1,194/fortnight. This is a small price to pay for the amount of money you will save over time.
These things are never explained by the banks as they don’t want you to pay off your loans quicker for their own interest. Some lenders may charge you an early payment cost for paying your loan in advance. This is particularly the case with fixed-interest loans, so it’s always best to check up-front. These costs can be large.
With just a few easy steps, you can significantly reduce the length of their Mortgage Advisor Melbourne and save thousands of dollars in the process. A mortgage broker can assist you in setting everything up.
For more information on how you can pay off your home loan sooner, contact me today for a NO BS advice.