Tips to Fast-track Paying off Your Loan
Whilst it’s lovely to live in a house that you own, with it often comes a mortgage. We have put together some extra steps that can speed up loan repayments and reduce your loan balance.
Make higher repayments – The minimum repayments required on a loan are calculated on the amount owing and the prevailing home loan interest rate. Repaying more than the minimum can cut the overall term of the loan and save you thousands of dollars in interest. A mortgage repayments calculator will quickly show what savings can be achieved. 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.
Make more frequent repayments – Home loans are often structured so that you make monthly repayments. But making fortnightly or even weekly repay- ments instead can reduce the term of a loan and save interest. For example if you make fortnightly repayments, you are paying the equivalent of half of your monthly repayment every two weeks. This allows you to make the equivalent of one extra monthly repayment per year. Extra repayments will ensure the loan balance is lower at the time of the month the interest is calculated.
Seek out lower rates – Although obvious, many borrowers take out a mortgage and then stop following the home loan market. With interest rates constantly changing, it pays to monitor the latest rates. If rates go down, contact your lender or broker and ask if they can reduce the rate on your loan.
Don’t take the rate cut – When a lender reduces the interest rate on its home loans, usually in line with a cut in official interest rates, your first thought may be to reduce your loan repayments accordingly. However, by maintaining your loan repayments, you effectively repay more than the minimum loan repayment. If it’s possible to do so, this will help you cut the term of the loan and save on interest.
Pay both principal and interest – While you can make lower repayments by choosing an interest-only loan, doing so means the principal component of the loan will not be repaid while you are only paying interest.
Get a financial package – You can often lock in a discounted loan rate with a financial package and also find special rates on other products and services. Putting those savings into your mortgage is a great way to get the best of both worlds. With just a few easy steps, you can significantly reduce the length of your mortgage and save thousands of dollars in the process.
For more information on how you can pay off your home loan sooner, some more personal advice to to help you achieve your investment goals, or to obtain pre-approval on a loan, please don’t hesitate to contact us at STS Accounting.
