While many people are excited about the idea of buying their first home, it can also be overwhelming knowing that you have to eventually pay off a large mortgage.
The good news is that with some simple strategies, there are ways to pay off your home loan faster than expected.
Borrow less than you can afford
It’s important to have a very clear understanding of what your financial situation is going to look like once you’ve taken on a mortgage. If you’re struggling to qualify for a home loan, then an option is to simply purchase a cheaper property.
While you might not get into your dream suburb straight away, as your equity position improves you can use that to move forward and upgrade. In addition, a more affordable home would mean you can pay down your debt faster.
Increase your repayment frequency
Most lenders will typically put you on monthly mortgage repayments. While this might be convenient, it might not be the most cost-effective option for you.
If you increase your repayment frequency to fortnightly or weekly, you will end up making more repayments over the course of the year and be paying down a higher amount of debt. There are only 12 months in a year, while there are 52 weeks and 26 fortnights.
That means your loan gets paid off faster and you’ll also be saving interest along the way.
Along the same lines, you also have the option of increasing your repayments. You don’t have to simply pay down the minimum each month. The more you can pay down that principal component the better.
Use an offset account
These days, there are several home loans that come with useful features that can help save you money on interest.
An offset account is one such tool. This feature operates like a transaction account, however, it is linked to your home loan account. Your total interest repayments are calculated based of the value of your home loan, less the funds in your offset account.
This means the more money in your offset account, the less interest you’ll pay. In turn, you can use those extra funds to make higher repayments on the principal loan.
If your current home loan doesn’t come with an offset account or lacks the flexibility that you need, it might be worth speaking to a mortgage broker to compare your options.