Ramsey Blog

How to Pay Off Your Home Loan 10 Years Faster

Most mortgages are spread out over 25 to 30 years, but it doesn’t have to be that way. With a few simple strategies you can take years and thousands off your loan, and it’s much easier than you might think.

Everyone would love to have no home loan, but a mortgage is part of life for the majority of us. Obviously, the faster you pay it off, the sooner you’ll be free to use your money to get a bit more out of life.

Our basic tip is to attack the Principal part of your home loan by paying more off than the minimum repayments the banks set for you, this way, you’re reducing your debt faster, while at the same time reducing the interest that’s charged. The money you save on interest can be used to make further payments on the Principal portion.

Sounds simple, right? We recognise it’s a lot easier said than done but by following a few of these tips and you’ll find it easier to wipe off years of repayments on your home loan, which is our primary goal for each customer we bring on at Ramsey Property Wealth:

Shop around for the right loan

You have to live with it, so it should suit your needs. It goes without saying that a low interest rate is important, but it’s not everything and you should also consider other features, fees and charges which can also make a big difference. We help you source the best loan solutions for your needs and let you choose from there.

Be wary of ‘Honeymoon’ loans

Some lenders will offer an attractive low interest rate for the first one or two years. After that, they’ll hike up rates and use high exit charges to stop you leaving. Look at the long-term cost of the loan.

Consider a 100% off-set account or facility

These are day-to-day transaction accounts that are linked to your home loan, and any balance on this linked accounts is considered as a reduction on your home loan owing, which reduces your interest bill. By having your salary or wages paid into this account, you’ll get a regular knock down in the amount you owe. Ask us more about this strategy.

Split your loan

This is a good way to protect yourself against rate rises and extra interest payments and a personal favourite of ours. By keeping part of your loan at a variable rate and locking the remaining at a low fixed rate for a period of time, if rates reduce, your variable loan’s rate will too. If rates go up, you’re also protected because your fixed loan is at a lower rate.

Look for features to help you save

In order to pay more off your loan, it’s a good idea to reduce your living costs in other areas. If you have a loan with a lender, you can often get discounts on things like life insurance, car insurance, home and contents insurance, and more by bundling this.

Use a Mortgage Advisor

Navigating the ins and outs of all the loans on offer and comparing them is never easy. Especially if there are smaller lenders or lenders that only operate via professional mortgage channels, these guys also come with great offerings, other than the big 4 or your current bank who is less likely to ‘review’ your home loan on a regular basis. It’s a good idea to make full use of a Broker’s expertise and at Ramsey, we would be more than happy to do the hard work for you, after all, its a lot more than just finding the right deal, the process, and getting you approved is the most crucial.

Every little bit counts

It’s remarkable what a large long-term difference a small extra amount can make. For example, $100 extra per month on a 30-year $400,000 loan at 5.5% per cent will take 2 years and 9 months off the loan and save almost $45,000 in interest. A simple way to make these extra payments is to ’round up’. If your monthly payment is $2,240, round it up to $2,300. And it shouldn’t be hard to find $60 per month. It’s a current cliché to say “buy one less coffee” or “cut back on the avocados”, but the principle is right. A few small daily savings can save you big dollars here and we back

Pay fortnightly instead of monthly

There are 12 months in the year and 26 fortnights.By paying fortnightly you’re effectively creating an extra ’13th month’. That extra month will put you in front!

Make the most of a lump sum

Lump sum payments like bonuses or tax refunds are like cash you’ve never really had. You’ve lived without it, so you won’t miss it or a portion of it when you’ve put it onto your loan, saving you the extra interest costs on the amount paid. Imagine how much you’d save if you paid your tax refund off your loan every year.

Review and refinance

Things change. Rates go up and down, you may change jobs or have another child, and new loan products are constantly introduced to the market. So it’s always a good idea to review your loan regularly to see if there is something more suited to your current needs and goals. Maybe it’s a lower interest rate, or you might think about splitting your loan for more stability. We work with each of our clients on a regular review so you can feel more secure and/or save more.

One last tip

Make it a habit to do a home loan health check once a year to make sure your loan is still right for you. The simplest way to do this is to speak to our Ramsey Mortgage Advisors!