Buying a house is likely to be the most costly investment you will ever make, so it’s no surprise that mortgages may take decades to pay off.
However, if you manage your money well, you can pay off this debt sooner and allow yourself more time to save for your next large purchase or investment.
To help you, we’ve outlined several techniques for paying off your mortgage faster.
1. Choose a variable rate loan over a fixed-rate loan
These two loan options both have advantages and disadvantages, but if you want to pay off your mortgage faster, you should consider a variable rate loan.
When you have a variable rate home loan, the interest rate on your regular repayments might vary at any moment, based on the Reserve Bank of Australia.
The main benefit of variable rate loan products is that they allow borrowers to react depending on current interest rates to save money and pay off their debts faster. Most lenders, for example, would allow you to make limitless additional repayments at no cost.
In contrast, if you acquire a fixed-rate loan, you’ll have to pay fixed sums every month – and you can only roll it over to a variable rate and make extra repayments once the fixed period expires.
2. Make repayments every time you receive your salary
Making repayments on the day you get your pay packet reduces the interest applied to your loan and allows you to save money faster.
Some banks allow you to set up automatic repayments directly from your bank account. You don’t need to worry about missing a payment, as your lender will simply take the money out of your bank account.
3. Make extra repayments whenever you can
If you have extra money available, it’s always worth paying a little extra to get your loan paid off faster.
Just pay them directly to your lender or to the home loan account to which your repayment is due before the due date. For example, if you have money sitting in your bank account for an extended period, it may be worth making a repayment at the beginning of the month rather than keeping your money in there for the entire month.
Some lenders allow you to make one lump sum extra repayment a year, sometimes worth up to 10% of your loan.
4. Run a home loan offset account
An offset account is different to your home loan in that you can make multiple transactions over a month – maybe you pay your rent, transfer money between accounts and make a repayment towards your home loan.
The money you put into an offset account is offset by the money going out, so you don’t earn any interest. But the good news is that any money you put into the offset account is applied directly to your home loan – so you can pay it off quicker.
5. Get a principal and interest loan
The principal and interest loan is the most common type of home loan on the market. It’s called this because the interest on your loan is calculated on the principal (the amount you borrowed).
By contrast, if you get an interest-only loan, the principal will stay the same, but the interest will increase over time.
Interest-only loans may help you pay off your loan quicker in the short term, but your repayments will be smaller, and the amount of interest you pay over the life of your loan will be greater.
Instead, you may want to consider a principal and interest loan to help you save money in the long run.
Conclusion
Your home loan is a good thing because it allows you to buy a house without paying a huge amount of money upfront. Unfortunately, that means you have to make regular payments to pay it off.
There are various strategies you can employ to get your loan paid off quicker, including paying extra when you get your salary, making a lump sum extra payment and using your mortgage offset account.
If you’re looking for mortgage lenders in Perth that can assist you in purchasing your dream home, don’t hesitate to contact FinanceCorp. We are mortgage professionals committed to ensuring that you thoroughly understand the lending options available to you.
All of the Finance Managers at FinanceCorp are fully qualified, trained and experienced mortgage professionals who live and breathe finance. Give us a call today to get started!