How To Save Money By Paying Off Your Home Loan Faster

Paying off a mortgage early can save on interest, free up cash-flow each month and help you enjoy all the benefits of a debt-free lifestyle. And there is no such thing as too early when it’s time to set money goals, such as paying down a home loan.

If reducing your mortgage debt is a key financial goal, here are some tips to kick-start your plan.

Make fortnightly payments

Instead of making one monthly payment, you can instead opt to make a half-sized payment every two weeks. Because there are 26 fortnights in the year, this strategy will result in you making an extra monthly payment every year.

Let’s look at some real-life numbers. If you had taken out a 30-year loan of $400,000 at an interest rate of 4%, making fortnightly repayments would save you around $45,000 in interest payments, shaving four years and one month off your mortgage. That’s an impressive outcome for a relatively minor change.

Increase your monthly repayment while rates are low

Another potential strategy to get the mortgage off your back sooner is to simply increase your monthly home loan payments. With interest rates at historic lows, there has never been a better time to reduce the principal on your mortgage, so make hay while the sun shines.

On a 30-year mortgage of $400,000, increasing repayments by $100 per month would cut 2 years and 7 months off the loan, resulting in an interest saving of $27,500. And don’t forget that adding any windfalls such as bonuses or an inheritance to your home loan can also take you closer to your goal.

Just check with your lender before changing your payment amount, as there may be limits on the amount of additional repayments you are allowed to make, particularly if you have a fixed rate loan.

Use an offset account

An offset account is a transaction account that is connected to your home loan. Any funds held in your offset are subtracted from what is owing on your mortgage before your interest repayment is calculated.

Holding any savings in your offset account and having your wages paid into it every month can be a great way to save on interest. Offset accounts also offer financial flexibility as the funds can be withdrawn at any time.

Consider consolidating your debts

If you have debt outside of your home loan, such as a car loan or credit cards, a debt consolidation home loan could help to simplify your affairs, as well as saving money.

As personal loans and credit cards will generally have a much higher rate of interest than your home loan, consolidating all of your debt into your home loan makes good financial sense.

While in the short-term this will mean the amount, you owe on your mortgage actually increases, over the long-term the interest savings accrued could be used to increase your repayments on your mortgage.

Put your financial future first

Three out of every four mortgage borrower sets and forgets their home loan after settlement has occurred and this leads to them paying a hefty price over the life of their mortgage. The banks rely on borrower’s loyalty and use this to their advantage by applying a ‘loyalty tax’ to their existing borrowers while offering their best rates to new home loan applicants.

The best way to avoid ‘bank loyalty tax’ is to move lenders at a regular basis over the life of your loan. You should of course ask your existing lender for a better deal and they are likely to oblige if they want to keep your business. This may be possible for the first few years of your loan however as life gets busier, you are most likely to start paying the loyalty tax sooner rather then later.

Fortunately, loansHub’s personal mortgage manager technology ensures that the home loan borrower is always beating the banks. Once on our platform, our technology reviews your home loan on regular basis, making sure that you never pay the banks loyalty tax over the life of your mortgage.

Remember, putting your financial future first means that there’s more cash in your pockets rather than your banks bottom line.