For most of us, a home loan will be the biggest debt we ever take on. It’s an investment, but there’s no avoiding the additional pressure that comes with such a large loan. The good news is that there are ways to minimise the time it takes to pay it off and in doing so massively reduce the interest you end up paying.
1. Get the best deal
The free market is meant to create competition and help drive down prices. As the finance market has grown, more institutions are becoming flexible in their approach to acquiring and keeping customers. That not only means having more options but also that banks and lenders are open to giving a better deal. One thing is for sure that it can’t hurt to ask!
2. Bypass the honeymoon
Firstly, be aware that many lenders use a brief lower rate of interest to acquire new customers. In assessing the value of a loan deal, you must take into account the long-term view, and ignore any marketing techniques to win over consumers.
3. Make bigger payments
Within the bounds of your contract and your income, you should pay off your loan as fast as possible. Every dollar you use to pay off your loan gets you closer to your goal of owning your home, debt-free.
Example: A $400,000 loan at 5% over 25 years your monthly repayments will be about $2,400 a total amount of about $700,000!
By paying off $4000 per month you reduce the loan to around eleven years, and the overall debt by as much as $180,000!
You can use some of our financial tools to calculate the different options and loan repayment amounts.
Over 25 years
Over 11 years
4. Make payments more frequently
Here’s another key repayment strategy. By splitting your monthly repayment into at least two blocks and making them every two weeks, you reduce the amounts that the loan is calculating your interest.
5. Make lump sum payments
If you come into money, paying off a lump sum can help reduce the length of your loan. e.g. $40,000 paid off a $400,000 loan can reduce the loan by three years!
6. Consolidate your current debts
Putting all your current debt into a single pile can reduce pressure and make it easier to pay off your mortgage sooner. Anything you can do to be smarter with your existing debts will reduce stress in your life.
7. Cut unnecessary spending
Next time you book a holiday, see if you can compromise on location or quality and still having everything you need. Stop buying coffee every day at work. Reduces snacks and luxury items and see just how much you can save in a month.
8. Financial tracking strategies
What you can’t track you can’t manage. Use apps and good software to help track your finances. Get a report every month and assess what you can do without and what needs to be shifted to meet your goal of being a debt-free homeowner.
9. Stick to the plan
Now that you have a strategy you need to keep disciplined. Get helpful reminders from your team or family if need be. Make it a team effort where you socially commit and you’re much more likely to keep your eye on the goal.
10. Enjoy your life
Amidst all this bookkeeping and financial management, don’t forget the real reason for all of this. Namely to have a more fulfilling and happy life on
your way towards being a homeowner.
Want to find out how you can buy one of our house & land packages?
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One of our sales team will be happy to recommend one of our preferred lenders and answer any questions you have.