10 tips to paying off your home loan quicker

With mortgage repayments taking up substantial part of household income, being mortgage-free is an ambition for many homeowners.

There are simple strategies that borrowers can implement to help them pay of their home loan faster from bringing your own sandwiches into work to seeking out discounted mortgage offerings to paying fortnightly instead of monthly.

Here a 10 tips from mortgage brokers Mortgage Choice and lender RAMS:

1. Shop around, from beginning to end of the loan term - Why would someone research only one lending institution before applying for a mortgage – one of the biggest financial decisions they will ever make? The same goes for throughout the loan term. Why would you stay with one lender for 25 years when Australia has a competitive mortgage market that changes frequently? Existing mortgage holders should do a home loan health check with their mortgage broker at least once every two years, especially if their income or other circumstances has changed. 

2. Don’t adjust repayments after an interest rate drop - If interest rates drop, borrowers should continue making the same regular repayment. They will potentially help the borrower save on total interest paid over the loan term. Maintaining regular repayments in the instance of a rate cut means the borrower doesn’t have to sacrifice a dollar to make significant gains on their mortgage.

3. Ignore the honeymoon rate - Many people make the mistake of not looking past their honeymoon period, when the mortgage interest rate is lower than it will be for the rest of the loan term. If the post-honeymoon period has not been budgeted and prepared for then obviously the borrower will be in for quite a shock. A clever move is to make mortgage repayments as if the honeymoon period doesn’t exist, so they are well prepared for its completion and already ahead on payments. They will also be unaffected by a rate rise if it occurs. 

4. Make fortnightly instead of monthly loan repayments - Over just twelve months, this equates to one extra month of additional repayments. This could cut four and a half years off a 25 year term loan and save about $69,000 interest on the average $300,000 home loan.

5. Save loose change and take your lunch with you sometimes - Saving money in small ways and making extra lump sum repayments can help to pay off your loan faster. An extra $25 a week to repayments will reduce the average $300,000 home loan over 25 years by six years and five months, saving over $97,000 in interest.

6. Consider an offset account - If all your salary is deposited into an offset account, any funds you leave in the account work harder for you because your savings are offset against your home loan to reduce the interest you pay.

7. Look out for promotional offers – If you’re applying for a new home loan, considering refinancing or at the end of fixed-term home loan, a home loan has no application fees, could save hundreds of dollars off the application process for your new home loan.

8. Pay extra each repayment period - The more additional dollars that are contributed more often, the better off the borrower will be. 

9. Make lump sum payments - Contributions of bonuses, tax returns and other financial windfalls can make a big difference to the interest owed over the life of the loan and the length of the loan term. 

10. Consider loan features carefully - Before deciding on a loan, the borrower needs to consider what loan features they really need, and how much each of those either contribute to the loan from the start (i.e. higher interest rate for more features) or how much they are going to cost down the track (e.g. $25 per redraw, a minimum $250 withdrawal, etc). With an ‘all-frills’ loan, the borrower most likely is paying a higher interest rate. If they don’t use all the facilities offered on the loan, it makes sense to refinance and switch to a more basic product offering a lower interest rate – their repayments will be lower, and they can afford to pay off the property more quickly if that is part of their strategy. Of course, switching costs need to be taken into account. Those who are looking at taking out a mortgage may also investigate their eligibility for a professional package, where they can receive benefits such as a reduced interest rate, no application or other fees, Gold credit cards and home insurance discounts.