Tips for Paying Off Your Loan Faster
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By accelerating paying off your mortgage you can save thousands of dollars over the life of the loan. There are no secret or hidden methods to paying off your loan sooner as some would have you believe. It doesn't matter how it is engineered, it is only by making higher payments than required that the principal is paid down sooner, saving on interest and reducing the term of the loan.
1. If possible pay a little extra than the minimum repayment amount each month. For example, if you pay an extra $10.00 per week on a $200,000 30 year loan you will save $28,000 in interest and shave off approximately three years off your loan.
2. Use windfalls of money such as tax returns, lottery winnings, and bonuses to make extra lump sum payments to your loan principal. Make sure you can do this without penalty. This should be done whenever possible and as soon as possible to reduce the effects of compounding interest on your loan. If your loan has a redraw feature then you will have the benefit of being able to access any extra payments when you need money unexpectedly.
3. Even if interest rates go down, continue making payments at the original rate.
4. One of the most effective things you can do is to make more frequent repayments. If you make fortnightly or weekly repayments. You will actually be making an extra payment each year which will save you money by reducing the principal and the term of your loan.
5. If possible have your income deposited directly into your home loan and then use a credit card to pay your daily expenses. This can be a valuable way to use your existing financial resources to lower the cost of your loan. The reason for this is because it allows you to keep all of your money on your loan for a longer period of time where your money can then work to reduce both the term of the loan as well as the interest.
6. It's a good idea to make your first loan payment immediately upon settling your loan. This way you are instantly getting ahead of the game.
7. You can also use what is called an offset account to reduce the term of your home loan. An offset account is like a savings account that offsets any money in it against the balance of your home loan. And this is done before interest is calculated. This, therefore, reduces the interest you pay and the term of your loan.
8. Use a home loan calculator to investigate different repayment scenario's and assess the possible savings.
If you can take advantage of any of the above strategies and you make a consistent effort to pay extra against your loan you will reduce the term of your loan and be paying more against the principal and therefore you will eventually save thousands of dollars on your home. The longer it takes you to pay off the principal of your loan the more interest you will pay.
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