There are ways to reduce your 30 year home loan term almost in half. Most of those with these kind of loans would be happy to pay it off before their loan term is up. Other borrowers continue to chip away their loan in auto pilot without evaluating and giving much thought on how they could pay off their mortgage faster.
Home Loans Melbourne offers tips on how to reduce their loan term by a year or five (or more).
- Align your mortgage repayments with your income. If your are paid on a monthly basis, you also pay your mortgage monthly. “Doing this cuts down on interest payable thus you will be able to save over the term of your home loan.
- Park lump sums in your mortgage account. If you get extra income like tax refunds, bonuses or dividends from your investments, you dump this in your mortgage. These can cut years worth of interest off the loan term.
- Increase your repayments while rates are stable. By paying an extra twenty to fifty dollars in each payment, you can cut up two years off the life span of your mortgage loan.
- Offset your loans with a savings account. Your savings account earns interest (ideally the same rate as your mortgage repayment, in a 100% offset). That amount will be subtracted from the interest payable on your loan.
- Have your wages paid into your offset. Supposing you are paid 10,000 dollars a month and that amount sit in your offset account for a few days per month, you can save a few hundred dollars in interest per year. If this will add up it can reduce the interest that you will pay as the interest will be debited at the end of the month. The calculation is made everyday.
- Perform a mortgage health check. If you have realized that your loan is no longer to your best advantage or that the interest rates have skyrocketed leaving you with an option of a variable rate than a fixed one, try to consider refinancing. Check if it is available with your present lender or you may find other lenders who could give you a better offer.