Tips on Decreasing the Length of your Home Loan

The moment your first home loan payment is deducted from your bank account, I bet you think "Wow, is that really going to happen for the next 30 years?"

Increasing your minimum payments

Now this one might seem like a no-brainer but when people consider increasing their repayments, they think this has to be a huge amount to make an impact. This isn't the case at all!

Example: You have a 30-year $500,000 home loan with an interest rate of 6.85%. This means your fortnightly repayments are $1,511. This is already a significant deduction from your wages but an increase doesn't have to be significant. If you were to increase your repayment to $1,550 (a difference of $39) you will decrease your estimated loan term from 30 years to just under 28 years as well as save you $64,409 in interest over the term of the loan.

As interest rates drop, continue paying if they were still high

A benefit to our current market is that interest rates are decreasing which will provide relief for many households. For those home owners who got through the peak of interest rates and were able to adjust their budget accordingly, you may look to consider keeping your repayments a bit higher as the rates start to fall.

Increase your repayments based on your pay increases

We often find as clients salaries increase, so does their spending. In this instance it's totally understandable to treat yourself for your hard work. However, this is also a great opportunity to review your home loan repayments amongst your overall budget and increase your repayments based on your comfortability. This change doesn't have to absorb your pay increase, but rather be a percentage of the increase that you're comfortable with.

Using a revolving credit or offset if you are a good saver

If you find you are good at savings or have funds not currently being required, an offset home loan or revolving credit facility could work to your advantage to decrease your loan term. Both options help you pay down your home loan more quickly by minimizing interest payments and giving you flexible access to funds at any time without penalty.

Adding lump sums to your home when your lender allows

We often get asked by clients how often they can put a lump sum on their home loan. Maybe if they've been able to save up on the side or come into some funds. This is a great way to decrease the size of your loan however it's important to note that majority of lenders may charge an early repayment fee if you home loan is within its fixed rate contracted period. The most common time to add funds to your home loan is when the loan comes off a fixed interest rate to avoid any break fees or in some cases specific lenders will have a set amount you can repay off your home loan or increase your repayments without penalty within their terms and conditions. Before proceeding with this option, we recommend seeking advice from your mortgage advisor or your bank to understand their policy surrounding this. If your home loan is on a variable rate the ability to make lump sum payments or increase your repayments is much more flexible.

We hope some of these tips are helpful and have got you thinking about how you can adjust your finances to decrease your loan term. If you'd like to know more about these options or are looking for assistance with your lending, please don't hesitate to get in touch.

Looking forward to hearing from you,

Fiona & Amy