You can do it!

There is a great deal of information out there in the press about ways to pay off your home loan faster. Most of this relates to line of credit type facilities that suggest you live off your credit card and have your salary paid directly into the loan. As outlined in types of home loans, unless you are very disciplined these can cause you to be worse off! 

We are also bombarded from various lenders with the suggestion to refinance and save thousands of dollars. Our experience has shown it is best to find a home loan you are comfortable with and leave it. Then concentrate on paying the loan off as fast as you can.

These are the best methods to pay your home loan off quicker.

Pay fortnightly or weekly instead of monthly

Why?   

12        x            $1,000          =            $12,000    

26        x            $   500          =            $13,000   

52        x            $   250          =            $13,000   

You are actually making more repayments each year and this extra amount comes off the principal.

Lump sum repayments reduce the principal balance by the amount of the payment, again reducing the interest. Even small amounts make a difference. If you consistently make lump sum repayments, no matter how small, then you will have permanently changed your behaviour. This will most likely lead to you looking at other ways to improve your financial position.

To demonstrate this, every extra dollar you put into your loan saves you around $2 over the term of the loan.

Try and pay a higher repayment amount rather than paying the normal required amount. I have often heard ""We will make lump sum repayments instead from money saved"". This hardly works. Trying to pay large lump sums is much harder and generally the money is spent elsewhere.

Did you know that after 7 years on a 25 year $100,000 home loan at 8% you would still owe $88,211! What is really scary is the average home loan lasts about the same time. Yes some people do stay in the same house most of their adult lives, but they are the minority. For the rest of us, we live in the house for 5-10 years and then sell and start the whole cycle. In most cases we are moving to a bigger house or better location which requires us to borrow more money.

We don't give ourselves the chance to live in our own home debt free. If it is not the Banks grabbing our money it is the Government and Real Estate Agents taking our hard earned money via stamp duty and commissions. Is it possible to stay in your existing house? If you can it may be worth your while.

Remember to pay off your home loan faster, you have to pay more off your home loan. That is the best solution.

Other Points to consider

Ensure your lender calculates the loan interest daily and charges it to the loan monthly in arrears. If it doesn't then the benefits of paying lump sum amounts are minimised. Ask your lender if extra repayments will assist to pay the loan off faster. Most financial institutions will say yes however some of the smaller organisations don't.

Ensure your lender enables you to pay it off faster by increasing repayments. Some of the loans with the cheapest rates around have a minimum & maximum loan term of 30 years. Others don't allow fortnightly instalments. Check the features of the loan and see if it meets your needs.