Noosa mortgage broker showing clients the different options for reducing their home loan

Thinking of ways to pay off your mortgage quicker? Here’s some tips on how to do it

Interest rates for home loans in Australia are currently at an all-time low which can present an excellent opportunity to pay off your mortgage quicker. The following tips combined with low rates should hopefully accelerate the time it takes to pay off your home loan.

Make repayments that are higher than the minimum

Making larger repayments on your home loan is without a doubt the quickest way to put a dent in your home loan balance. Most loan terms are set up for 30 years – by increasing your repayments above the minimum you could potentially save thousands in interest and dramatically reduce your loan term.

Some lenders will allow you to change the minimum repayment via their online banking or in branch. Another option is to simply set up a direct transfer from your savings account into your mortgage each month.

Have a play around with a mortgage repayment calculator to see how quickly your extra repayments could result in paying off your home loan.

Utilise an offset account

A lot of lenders allow borrowers to link up an offset account with their mortgage. An offset account is like a savings account which is linked to your mortgage. With a normal savings account you accumulate interest on the savings in your bank account. With an offset account – you don’t get paid interest from the bank. Instead, the money sitting in your offset account will reduce the interest you pay on your home loan. Paying less interest means you end up paying more of the loan principal – and in turn, reduce your home loan balance quicker.

Obtain a lower rate

While the Reserve Bank of Australia hasn’t changed interest rates in quite a while – the interest rates on offer from banks have fluctuated frequently. Especially when it comes to investment lending and fixed rates.

Checking the market from time to time can be a great way of ensuring that your interest rate is still competitive. It’s an obvious one – but the lower the interest rate the quicker you can get rid of your mortgage debt!

Don’t reduce your repayments if rates drop

If your bank reduces interest rates – don’t be tempted to reduce your ongoing repayments. Continue with your current repayments (which are now more than the minimum) and that will help you reduce the loan term as well as save on interest.

Go with principal and interest repayments

Principal and interest repayments ensure that your loan balance will reduce over term. On the other side of the spectrum is interest only – which means you only pay interest during the interest only term. While you can make extra repayments into an interest only loan – some borrowers may get into a habit of making the minimum interest only repayments and don’t end up paying down their home loan.

Interest rates for interest only loans are also higher than those for principal and interest which is another great incentive to go with principal and interest  – particularly for owner occupied properties.

Split your loan into a fixed/variable combination

Splitting your loan can often provide you with the best of both worlds. You’ll obtain the flexibility that a variable rate offers in terms of an offset account, redraw facility and ability to make unlimited extra repayments.

While the fixed rate will provide you with some repayment certainty which can be handy for household budgeting. Some lenders also allow extra repayments into a fixed loan.

Get a professional finance package

Quite a few lenders offer “professional package” home loans which usually come with an offset account, a life of the loan discount on your interest rate and a credit card.

Some borrowers will use their credit cards to pay for everyday expenses and then use the savings from their offset account to clear the credit card debt each month. The benefit here is twofold.

Firstly – they may accumulate rewards points on their credit card and secondly, they save some additional interest on their home loan due to keeping additional funds in their account for the month.

With this strategy, it’s important to ensure you clear your credit card debt each month prior to interest on the card kicking in!

There you have it – with these straight forward tips you might be able to reduce the interest you pay to the bank and lower your loan term.

For more information or help with reducing your loan repayments – feel free to get in touch. Being a mortgage broker means we have access to dozens of lenders and hundreds of products so there’s a good chance we can save you money! If you’re not in Noosa – no worries. Our Noosa mortgage broker service is offered to customers Australia wide via email, phone and skype/facetime.

Jamie Moore

About the author: Jamie is the owner and founder of Pass Go Home Loans and operates between the Noosa and Canberra offices. If you’d like Jamie to provide you with some credit advice – just complete and return this FORM

Pass Go Home Loans Pty Ltd | | 1300 656 299

This information is not intended to act as financial, investment, legal, accounting or taxation advice – and for that reason should not be relied upon as specific advice for your situation. You should always obtain independent, professional advice prior to making any financial, investment, legal or taxation decisions. 


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