How to pay off your home loan sooner

It would be nice to be able to grow money in order to pay off your home loan sooner. After all, it is one of the biggest, if not the biggest, debts you will ever have. With a 25 to 30 year repayment term it is literally a lifetime of payments. Paying it off sooner is not a big secret. It’s about getting those extra dollars onto the loan sooner rather than later. Here’s a few tips on how to eat away at that debt just a little bit faster.   


1 – Add extra cash to the stash. With interest rates going down at the moment a super simple way to eat at that mortgage faster is just to keep your repayment amounts the same. As minimum rates drop you’ll find yourself paying that little bit extra. Even better, if you can add even an extra $50 with each repayment you can wipe years off your loan in the long term.  


2 – Chat with your mortgage provider.  Your mortgage provider wants to keep you with them. Most providers will give you a decent mortgage health check once a year. You just have to take the initiative to head on over and talk to them. You may find you’re eligible for discounted rates or reduced fees due to your loyalty. If you don’t get any joy then there are plenty of other providers out there vying for your attention. It might be worth doing a comparison check and seeing if you can get a better deal. The less interest and ongoing costs you have, the faster you’ll get through that loan.   


3 – Shake up that monthly repayment and break it down to weekly payments instead. Don’t wait until the end of the month to make one big payment. Pay it weekly. Since interest is calculated every single day you will save money by popping a little extra in that much quicker. This tip works best if you can take the monthly repayment and divide it by 4 to get your weekly repayment amount. You’ll actually end up paying much more than the minimum monthly repayment over the year this way.  


4 – Focus and prioritise. It’s easy to fritter away money without even realising where it’s going. Be mindful of what you’re doing with your money and make your decision a priority. This means you make a conscious choice not to spend money on expenses you don’t really use or could find cheaper alternatives for. Toss those dollars into the home loan instead.  


5 – Totally offset that mortgage. This is one of the best and easiest ways to keep that mortgage down. In fact if you use this tip you can totally ignore tips 1, 3 and 4. Phew, that makes it easier doesn’t it?  An offset account is a day to day transaction account that is linked to your mortgage. Every single dollar in your offset account counts as against the balance of your mortgage, reducing the amount of interest you are charged each month. (Just be sure it is a 100% offset account and not a partial offset account). Make sure all your income automatically goes into this offset account. That way your money will be working towards saving you mortgage costs from the moment you get it. You are still free to use the offset account when, and as needed. This means you’re saving on interest costs without even having to think about it.  


As an added bonus when you use an offset you don’t have to worry about interest deductibility. When you are living in your home your mortgage doesn’t give you any tax deductible costs. However if you should move out one day and start renting the property out you want to be able to claim the interest costs as an expense. Unfortunately if you frequently redraw from a mortgage or use it as a daily line of credit this will limit or eliminate any potential ability to claim the interest costs as a tax deduction. However, if you use an offset account instead then you don’t run into this problem since the money in the offset account never technically counted as loan repayments.  


You have a lot of options to help you pay off your mortgage sooner. For professional advice specifically regarding your circumstances, make sure you speak to your tax agent or financial planner.  

 * A finance or mortgage broker can save you time and money, but you should still do your own research. Be prepared to ask plenty of questions to help your broker find you a loan that meets your needs and offers value for money. Please note that Zac McHardy is not giving any legal or financial advice *

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