There are many reasons why you should pay out your home loan as quickly as possible. Today we’ll discuss three sure-fire ways to tackle your home loan debt.
Paying off your home loan sooner will ensure that you avoid hefty interest payments and may also unlock some equity in your property which you can then use to upgrade or purchase an investment property.
1. Make Your Repayments More Frequently
One of the best tactics available to you is to make your home loan repayments each fortnight, rather than monthly. It’s hard to understand how this method works but look at it like this. There are 12 calendar months in a year and 26 fortnights.
Therefore if you were to make your repayments each fortnight you end up making the equivalent of 13 monthly repayments each year. If you can manage to stick to a fortnightly schedule over a period of a few years, it will make a huge difference to the balance of your loan.
When your lender reduces the interest rate on your loan, your minimum loan repayment figure also comes down. If you’ve been managing to make the repayments at the higher pre-cut levels, why not keep paying this same amount?
In doing so you will greatly reduce the life of your loan and you’ll also dodge some of the interest payable on it. If you can afford it, this tactic is well worth implementing into your budget.
3. Make A Lump Sum Payment Into Your Home Loan
If you’ve got some savings sitting in an account somewhere or you receive a nice bonus at work, why not put it into your home loan in the form of a lump sum payment?
Lump sum payments can make a big difference to the length of your home loan. Take a loan of $300,000 at a standard variable rate of 7% over a 30 year period for example. If you were one year into your loan term and you managed to contribute a lump sum payment of $1000 into it, you would reduce the overall term by three months and the total repayments by approximately $6,509. That’s a great result considering that you only contributed an extra $1,000. Imagine the impact of this tactic if you were able to make a lump sum payment every year?
The strategies listed above are all great methods you can use to reduce the life of your home loan. If you can implement all three of them you will be chipping away at the balance of your loan at a great rate. It’s also a good idea to conduct a “home loan health check” each year to monitor your progress and also to look around for other loans that may now suit you even better.