If you want to pay your mortgage faster, you’re not alone. Tens of thousands of Australians are struggling with rising variable interest rates pushing their monthly payments up to unmanageable levels.
If you’re interested in paying down your home loan, look no further. In this article, we’ll cover the following steps to help you pay off your home loan faster:
Paying off your mortgage can feel unmanageable, but this is often untrue. Start evaluating your current financial situation by analysing your monthly ingoings and outgoings and savings account. This allows you to see how much disposable income you’re left with every month and whether you’re able to start reducing your loan with lump sum payments.
If your disposable income is minimal, it might be time to identify areas where you can reduce your spending and debts, whether from a credit card or personal loan. To pay off your home loan quicker, you’ll likely need to make spending sacrifices in the short term.
Important: If you’re unsure how to reduce your spending, seek financial advice.
Once you’ve analysed your bank account balance and better understand your disposable income, it’s time to create a budget for paying off your loan sooner. Allocate a realistic amount of your disposable income towards your home loan repayment. Whether you can put thousands of dollars or a couple hundred towards paying off your home loan faster, every little bit counts.
Note: To better manage your lump sum repayments, create a separate budget where you can track and allocate any extra home loan funds. This will help you see how much you can afford from month to month.
Once you’ve established your budget, it’s time to choose a repayment strategy to pay off your home loan sooner.
If you’re stuck with a variable-rate mortgage combined with rising interest rates, or you’re on a fixed-rate home loan that’s about to end, you might want to consider refinancing.
Refinancing high-interest-rate home loans is a common strategy for paying off a mortgage faster as you switch to a lower interest rate. With a lower interest rate, more of your monthly payments can go towards reducing your home loan principal balance, enabling you to pay off the loan faster.
A mortgage offset account is a type of savings account that’s linked to your home loan. In other words, the balance of your offset account is offset against your outstanding home loan, which reduces your interest. For instance, if you have an outstanding loan of $300,000, and your offset account has a balance of $50,000, you’ll only be charged interest on $250,0000 of your loan.
Note: Offset accounts can help you pay off your loan faster since you’re paying less overall interest on your home loan. If you have significant savings, an offset account is a fantastic option.
Rather than putting your extra income into a savings account, use it to make extra payments towards your home loan. This can be done by direct debit at the start of the month, so you don’t spend your extra income before you’ve made an additional repayment.
Consult with a mortgage broker or financial advisor to evaluate your options and determine the best approach for utilising your extra income to pay off your home loan faster. They can provide personalised guidance based on your financial situation and goals and will likely recommend the following options:
You can apply online for a meeting with a financial planner. Ensure you check their reviews and recommendations before moving forward with a financial professional.
In this article, we’ve covered all the ways in which home buyers can pay off their loans faster and avoid mortgage interest rate rises. Your monthly home loan repayment shouldn’t leave you in crippling debt - if you’re struggling with mortgage stress, consult with a mortgage broker or financial advisor.
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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.
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