If you’d like to be mortgage-free faster, here are some top tips to help you get there.
If your budget allows, consider fortnightly payments instead of monthly ones. Why? Because while there are 12 months in a year, there are 26 fortnights – which means you’d be paying an equivalent of one extra month's payments towards your loan every year.
It makes a big difference. Here’s an example of how it works:
Monthly payments = $2,000
12 payments in a year = $24,000
Fortnightly payments = $1,000
26 payments in a year = $26,000
As shown, changing to fortnightly payments, would mean an extra $2000 is paid towards this home loan every year. Over 10 years that’s an extra $20,000!
If you have a windfall, bonus or inheritance, it may make sense to make an extra payment on your floating rate home loan. Keeping part of your home loan on a floating rate, means you'll be able to make extra payments on your loan at any time without cost.
Making extra payments will not only reduce the time it takes to repay your loan, but you'll pay less in interest too.
If you have some of your loan on a floating rate, consider keeping your payments the same if interest rates drop. That way, you’ll pay the principal off faster, reduce your outstanding home loan balance, and you could pay less interest in the long run.
Best of all, you could become mortgage free faster.
Even a small increase in your payments can make a big difference over time. So if you can afford it, why not put some extra money towards paying your home off faster.
On a floating rate loan, you’re free to increase your payments by however much you like without paying early repayment adjustments (ERA). On a fixed rate loan you can increase your loan payments by up to $500 per fortnight or $1000 per month. If you do this, you can pay off your home loan faster without paying an ERA, as long as you keep these payments for the remainder of your fixed term.
Every bit counts. So if you’re keen to pay off your home faster, this is an easy way to do it.
Revolving credit could be the right option if you want to pay off your home loan faster, but also like the security of having money on hand when you need it.
Revolving credit works like an overdraft on a transaction account. Any money you put into your revolving credit account – like your salary or wages – will reduce your loan balance and save you interest until you need to use the funds again. When you need the cash, simply withdraw it from the account up to your available limit. Easy.
Taking a shorter loan term could be a good option if you can afford to make higher payments. It means you’ll not only pay off your home loan faster, but also reap the benefits of paying less interest, saving you money in the long run.
Here’s an example based on a loan of $250,000 with an interest rate of 6.00% for the entire term of the loan:
Current loan term = 25 years
Current fortnightly payments = $741
Total interest paid over 25 years = $232,967
Reduced loan term = 20 years
New fortnightly payments = $824
Total interest paid over 20 years = $179,345
That's a saving of $53,622 in total interest and you've paid off your home five years faster.
ASB’s lending criteria, terms and fees apply.
The above information is a guide only and should not be relied on as it does not take into account your personal financial situation.