People spend a large portion of their lives paying back banks for home loans. Paying off your mortgage quicker can free up precious time and money for the things you really enjoy.
Paying your mortgage faster reduces the total amount you need to pay your home loan and can provide you with a stress-free lifestyle. Whether you are applying for the First Home Owners Grant, or you have owned a home for several years, we have compiled a list of ways to reduce the amount you pay on your total home loan interest and repay your mortgage faster.
Mortgage offset account
A mortgage offset account can be used like a regular transaction account. A mortgage offset account has all the same features as a transaction account although, the money in the account offsets the principal used in the mortgage loan.
For example, you have a mortgage of $400,000 and have $50,000 in a mortgage offset account. This means you are only required to pay interest on $350,000 of your home loan rather than $400,000.
A mortgage offset account lets you pay off your mortgage faster as you are paying less interest on your home loan.
The disadvantages of offset accounts are the fees that are associated. If you opt into a loan with an offset account, the bank may charge higher fees than a typical home loan. To get the most out of an offset account, you should be regularly depositing into the account.
Redraw facility
A redraw facility is like a mortgage offset account in the sense that you pay less interest on your loan from your contributions. A redraw facility allows a borrower to make extra payments on their mortgage that can be accessed later if needed.
Unlike mortgage offset accounts, redraw facilities do not work like regular transaction accounts and require the borrower to transfer funds into another account. Redraw facilities are more readily available to borrowers, while some banks do not offer offset accounts.
Paying fortnightly
Changing your mortgage repayments from monthly to fortnightly can help you pay off your home loan faster. When you increase the frequency of your mortgage repayments you pay down more of your home’s principal.
As you are making 26 repayments instead of 12, you will be paying less interest over the life of your home loan. Paying your mortgage fortnightly is a simple trick that can save you a lot of time and money.
Increase your payments when interest rates are low
When interest rates are low, why not make the most of paying down your mortgage? When interest rates are high, many Australians struggle to pay their home loans. That is why paying off more of your mortgage can be beneficial in times of low-interest rates.
Reduce your unessential expenses
Reducing your unessential expenses frees up extra cash that can be used to pay down your mortgage. For example, cutting back on your takeaway consumption at least once a month is a small sacrifice that can save you a lot of money on your home loan.