Top tips to pay off your home loan faster
It is easy to simply set your mortgage repayments and leave them to tick away while you are busy with life. But finding little ways to repay your mortgage faster will have an ever-accelerating effect.
Every little bit of 'extra' money that you pay off your loan will immediately reduce the interest you have to pay with each repayment. Which may mean you can repay your loan much faster than you had originally set out to do.
Here are some top tips that may help you pay off your home loan faster. You can do them all from your desktop or mobile with ASB Home Central.
01
Increase your repayment amount
Your home loan has a minimum repayment amount, but did you know you can pay more than this amount?
At ASB, if you have a fixed rate loan, you're free to increase your regular repayment amount by up to $500 a fortnight or $1000 a month without incurring an Early Repayment Adjustment (ERA). Even paying an additional $20 a fortnight may make a difference in how quickly you can repay your home loan. Note: if you do increase your repayment amount, you must keep the repayments at this level for the remainder of your fixed rate term.
Here is an example:
If you have a $500,000 mortgage at 6.00% p.a. and a 25-year term. Your minimum repayment is $1,486 a fortnight. Over the term you'll pay $485,894 in interest costs. However, paying an extra $100 a fortnight for the remaining mortgage term could mean you could save around $71,000 in interest costs. This example assumes the interest rate stays at 6.00% over the remaining term of your loan.
If you have a floating rate loan, you can increase your repayments by however much you like without paying an ERA.
To start saving, increase your repayments as early as possible in your mortgage term. The faster you pay your principal down, the more interest you'll save over the term of the loan. Want to get started? Check the numbers first in ASB Home Central. It will show you how much faster you could pay off your loan and the interest you could save. When you find the repayment solution that works for you, you can submit the changes securely in ASB Home Central.
02
Make fortnightly repayments
Many people automatically tie their mortgage repayments to their payday - it makes budgeting 'easier'! But if you can afford to do so, change your repayments from monthly to fortnightly. This single decision could make a big difference to the total interest you pay over the life of your home loan and mean you could pay it off faster.
Here is how it helps:
- When you make monthly payments, you make 12 payments a year. When you pay fortnightly, you make 26 payments per year, which equates to 13 months
- This means you'd be paying an equivalent of one extra month repayment towards your loan every year
Take a look at how this small change adds up over time:
Monthly loan payments
Monthly payments = $2,000
12 payments in a year = $24,000
Fortnightly loan payments
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!
Take a look at how fortnightly payment would affect you on ASB Home Central.
03
Keep your repayments the same when your interest rate drops
An easy way to help you repay your home loan faster is to keep your repayment the same if your interest rate drops. This applies to both floating and fixed rate loans; a floating rate loan when the variable rate drops, or if you refix your fixed rate loan to a lower rate.
By keeping your repayment the same if interest rates drop you could:
- Pay the principal off faster
- Reduce your outstanding home loan balance
- Pay less interest in the long run
How does it work?
If your current home loan repayment is $1,000 a fortnight and when you refix your home loan your new repayment amount is $800 a fortnight. Rather than paying only $800 a fortnight, keep your repayment at $1,000 a fortnight and you will automatically be paying an extra $200 a fortnight towards the principal, saving you interest and helping you pay your loan off faster.
Next time you see your rates drop, consider keeping your repayment the same.
Make adjustments to your home loan repayments through ASB Home Central. You can adjust your repayment dates, frequency and amount in a few minutes on your mobile or desktop today.
04
Loan structure matters
Did you know you can split your home loan across both fixed and floating rate loans?
Rather than fixing all of your home loan for the same term (i.e. two years) or having all of your home loan on a floating rate, you could consider splitting the loan out across two or more fixed or variable rate loans.
Here is an example:
Splitting a $450,000 home loan into $200,000 on a one-year fixed rate, $200,000 on a 3-year fixed rate and $50,000 on a variable rate loan. This would allow you to make lump sum payments on the $50,000 as and when you could without an Early Repayment Adjustment fee, or on the $200,000 after the first year. You would have the certainty of the three-year rate on the remaining $200,000.
Splitting your home loan into multiple loans not only gives you more opportunities to plan and reassess your loan structure around expected events, it could also help you pay less interest and could take time off your home loan.
We're here to help
Call one of our home lending team today to talk through what structure could be right for you. Our team are available weekdays 8:00am-6:30pm and on Saturday 8:30am-5:00pm on 0800 100 600 or +64 9 306 3000 if you are overseas.
05
Make a lump sum payment
If you are lucky enough to run into a little extra money, whether it's a work bonus, inheritance, pay rise, tax refund, or cash gift, putting it towards your home loan could reduce the time it takes you to repay your loan and could save you in interest costs.
Lump sum payments on variable rate loans:
- If you have a variable rate loan you can make lump sum payments at any time without an Early Repayment Adjustment (ERA) fee.
Lump sum payments on fixed rate loans:
- If you have a fixed rate home loan, check with one of our Home Lending team on how you can repay the loan before the fixed interest period ends, just know you may be liable for an Early Repayment Adjustment fee.
- If you've split your home loan into more than one fixed term loan, for example you have some fixed for one year and some fixed for two years, the ERA will apply separately to each fixed loan.
06
Get a revolving credit loan if you need money on hand
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.
ASB Home Central. Visualise your home loan. Explore the possibilities.
Take control of your home loan with our useful tool, ASB Home Central.
Change your repayments, fix a floating home loan and see the impacts of adjustments to your home loan.
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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.