Paying off your home loan faster
Paying off your home loan faster is a great idea, but it’s hard to get excited about such a long-term goal.
If you took out your loan over 30 years and you’re chipping away at it, good on you! But I’m going to show you two simple steps to pay your loan faster and save yourself thousands in interest.
How to pay off your loan faster
There are three simple steps you can take to reduce the interest you pay on your home loan, and pay it off faster.
Firstly, set your repayments to weekly instead of fortnightly or monthly.
Secondly, round up your repayment to the nearest hundred.
Finally, ensure your savings are in your Redraw or in your Offset.
By paying your loan weekly and paying a higher amount, you are reducing the interest that is payable by you, fast-tracking the journey to the end of your loan.
When you also include interest savings from having your funds in your Redraw or Offset, you are compounding and multiplying the benefit, meaning more money in your pocket over the long-term instead of the banks.
An example of paying your loan faster
Name: Shelly
Age: 30
Current Mortgage: $400,000
Loan Term: 30 Yrs
Interest Rate: 4%
Repayment: $1,910 Monthly
Total Interest Payable: $287,365
Shelly is happily paying off her mortgage, one bit at a time. She’ll be 60 years old when it’s paid off. She will then have only ten years to prepare for retirement.
Shelly is paying off her mortgage with monthly repayments. She changes her repayments to come out of her account weekly, instead of monthly. It’s easier to keep track of when she gets paid weekly. While she’s doing that, she’ll round it up to $500 per week, because what’s an extra $20 per week, right?
Shelly has just saved $66,000 over the life of her loan. She also took 6 years and 1 month off her 30 year loan term. That means she will be 54 years old when she pays off her mortgage, instead of 60 years old. Now Shelly will achieve financial freedom earlier in life, and the benefit will compound as she plans for her retirement.
Find out how to save money on your loan
You can use a calculator like this one here to see how weekly repayments could change your life.
If you’d prefer expert advice and a more personalised approach, schedule a call with us today by clicking here.