You made it through the home loan approval process and you have started getting used to paying off your mortgage every month.
Now that you’ve finally felt financially stable for a while, the thought has occurred to you that you could work on paying off your home loan faster, while things are looking good. The time has come to see what can be done about the matter, because no one wants to enter the retirement with a debt burdening them, do they?
Therefore, here are a few ways to shorten the mortgage period without too many changes to your lifestyle.
Run your figures
Sit down for a quick 10 minute review of your budget; where is your money going, is there anywhere you can trim some spending or unnecessary costs in order to put more into your home loan? There are some great online calculator tools that can help you to work out your budgets and repayment options.
Find a cheaper interest rate
True enough, you have just gotten used to your monthly installments, but that doesn’t mean you’re stuck with the same bank and more or less the same rates for eternity. Quite the contrary – the adventure has just started! You can refinance, your bank is just one of many offering their best deals. Feel free to compare what other lenders are offering you. Believe it or not, but there are fair chances to find someone offering you an even lower interest rate.
Once you have found a better deal, it still doesn’t have to mean you should switch immediately. Why don’t you call your bank first and see if they can outbid the offer? This happens all the time, but banks (naturally) won’t really brag about it.
Try an offset account
This refers to a transactional savings account connected to your home loan. What does that even mean? Basically, the balance of the offset account is taken off the main amount you owe once the interest is calculated. In practice, here’s how it works.
Let’s say your home loan is $450,000 and your interest rate is 5%. If your offset account balance is $50,000, you would only be calculated the interest on $400,000 of your home loan. In a nutshell, you would pay only $20,000 for your interest per year, instead of the original amount of $22,500. This way, you save $2,500 a year, which sums up quite nicely over a period of 10 years.
Align the repayments and your salary
It may sound weird, but by dividing your monthly payment into fortnight installments, you would save an extra month each year. If you aren’t keen on saving much or going an extra mile to get rid of the mortgage faster, this is the solution for you.
For example, if you pay $2,000 each month, that’s $24,000 a year (not counting the interest). But with fortnight payments of $1,000, you will have repaid $26,000 by the end of the year. Impossible? No, it’s perfectly logical. While there are 12 months in a year, there are actually 26 fortnights. Step by step, and you’ll have repaid everything a few years sooner.
An extra tip: if you raise your fortnight installment by only $50, this can go a long way.
Make it a priority
One of the simplest rules which is often overlooked. Paying off your mortgage should be your number one priority. Any sudden windfall is to be used for that purpose. Whatever vacation plans you have in mind, your monthly installment mustn’t be compromised.
Try some side hustles
There are tons of opportunities out there which can boost your finances, so find something interesting and not too time-consuming, and use the money wisely. I have listed quite a few great side hustles here if you are looking for some ideas.
Remember, paying off your home loan earlier still takes time, but if you are consistent, you’ll be feeling very proud one day when you realize you’ve earned your freedom much sooner than originally anticipated.