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Four ways to help you own your home sooner

 
A couple in front of their home

If you’re a home owner or looking to become one, there are probably two things you spend a lot of time thinking about: property values and home loan interest rates.

Sadly, there’s not a whole lot individuals can do to influence either of these. But don’t feel powerless. There are some variables you can control that could help you reduce the amount of interest you owe so you can own your home sooner.

1. Make extra repayments (if you can afford to)

This might sound like an obvious one, but some borrowers may not realise that there’s often an option to increase your repayments above the minimum monthly amount. This is more relevant if you have a variable rate loan, but some fixed rate loans may also offer limited scope to pay more.

Doing this could mean increasing your regular repayments, or simply making extra repayments whenever you have some spare cash. Either way you’ll be chipping away at your loan amount and reducing how much interest you need to pay.

Example: Even something as simple as rounding up your regular repayments to the nearest $10 (e.g. pay back $1,020 a fortnight instead of $1,011.67) could be a big help over the life of your loan, and you won’t notice the difference to your budget.

If you have a home loan with a redraw facility, you’ll be able to access the extra money you’ve paid off if you ever need it in an emergency. Think of it like using your home loan as a savings account, but instead of earning interest, you’re avoiding having to pay it.

Extra repayments calculator

2. Increase your repayment frequency

Some home loans give you the option to change your repayment schedule, and you may have the ability to make your repayments weekly, fortnightly or monthly. The general rule is that the more often your repayments are, the less interest you will have to pay back, because interest is usually calculated daily.

A good example is moving from monthly to fortnightly repayments (in line with your salary coming in, for example). If your monthly repayments were $2,000 and you switch to fortnightly repayments of $1,000, not only would save on interest, you’d also pay off $2,000 more on your loan over the course of a year. This is simply because there are 12 months in a year and 26 fortnights. It’s basic stuff, but it works.

3. Use an offset account

Many home loans come with an offset account, which if used wisely can help you pay less interest. An offset account is simply an everyday account linked to your home loan. Any money that you put in the linked account is used to offset the interest you pay on your home loan. For example, if your home loan is $250,000 but you have $5,000 in your offset account, you would only pay interest on $245,000 of your home loan.

Remember, though, that not all home loans have an offset feature or there may be limits on the amount you can offset.

4. Pay lump sums into your loan

If you receive a lump sum like a tax refund, a bonus at work or an inheritance, it’s tempting to spend it on a treat for yourself. But if you have the option to put that amount - or even part of it - into your home loan, it’ll reduce what you owe, how much interest you’ll pay and how long your home loan will be hanging around for.

Find out how much time and interest a one-off lump sum payment could shave off your loan.

Lump sum calculator

Important information:
Please note that this is only intended as a general guide in relation to issues you may want to consider when paying off your home loan. It is not intended to be an exhaustive list of all relevant issues and you should take into account your own particular circumstances, and obtain independent expert advice where needed, before proceeding.

Mar 07, 2018 | Found in: news, homeloan, lending,
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