How to pay off your home loan faster

Standard mortgage terms are 25, or 30 years, but what if you could reach mortgage freedom sooner than that? Opting to pay off your mortgage early may save you hundreds of thousands of dollars in interest, and small changes may add up to big results. Here are a few ways you can pay down your home loan faster.

Consider an offset account

Making extra repayments isn't always possible, especially with the cost of living rising. But an offset account may help you reduce your home loan interest and loan term, without losing access to your savings.

With an offset account, you can park your savings in an account linked to your home loan and use that balance to offset the amount of interest you pay. If you have a $500,000 home loan and you put $50,000 in an offset account, your interest will be calculated as though your loan balance is $450,000.

Bendigo Bank's Complete Home Loan offers 100% offset accounts on both fixed and variable rates, giving customers all the benefits of an offset account regardless of your loan structure.

Make higher repayments

Making additional repayments can also help you pay off your home loan sooner. If you’re paying both the principal and interest off your loan, you’re paying off the loan amount and the interest changed for borrowing the funds. When you make additional repayments, you’re chipping away at that principal specifically. That means lowering the amount you owe, and therefore reducing the interest you’re being charged.

Again, small changes can add up to big results. Our repayments calculator can help you play around with every detail of your home loan to help find a repayment method that works.

With that 30 year $500,000 loan with a 5 per cent interest rate, just $100 extra per month could shave 2 years 4 months off of your mortgage. Up that to $100 per fortnight, and you could be mortgage free 4 years 8 months sooner.

Make lump sum payments

If you come into a sum of money through a bonus, inheritance, windfall or gift, it’s worth considering paying an extra chunk off your mortgage.

Let’s say you came into $50,000 in year 15 of your 30 year $500,000 mortgage. Paying that $50,000 off your home loan could save you an additional $48,064.57 in interest and shave 3 years off your loan term.

Utilise a redraw facility

This might be something you’ve heard of. It’s a way of making extra repayments and being able to withdraw some of these extra repayments if you need to.

A redraw facility shares some similarities to an offset account, but they offer different things. Depending on your circumstances, one option may suit you more than the other.

Basically, you can “redraw” your extra contributions, other than the amount of one repayment.
This ensures there are still enough funds available to meet your next scheduled loan repayment.

Accumulating funds within a redraw facility reduces the interest you owe for your loan. The higher the redraw facility can climb, the less interest you’re required to pay. Which will result in your mortgage being paid off faster. Nice!

The maths looks like this:

• You have a $300,000 home loan and your monthly repayments are $2,000.
• Each month for the last six months you’ve paid an extra $500 into your home loan.
• Using the redraw facility, you can redraw $1,000 from your home loan if you need to.
• You don’t earn interest on any additional repayments, but it lowers the interest you pay on your home loan.

For example, if you’re in need of a new car you can “redraw” a sum of money to help cover that cost. The same applies for a holiday, a new computer, or anything else you can think of.

Find a lower interest rate

Getting a lower interest rate on your home loan can help you pay off your loan faster by reducing your minimum repayments, allowing you to pay extra off your principal more often.

That $500,000 mortgage with a 5 per cent interest rate would see you making repayments of $2,685 per month. If you were able to secure a lower rate at 4.5 per cent, your monthly repayment would be $151 lower.

With these savings you could make additional repayments to your principal, paying down your balance much faster.

Does your home loan need a health check?

If you want to pay off your home loan faster, a Bendigo Bank Home Loan Health Check can help you identify which is the best strategy for you. We will spend time with you to learn about your circumstances and goals to identify opportunities to make your home loan work for you. It’s a free service and available to anyone, whether you’re a customer of Bendigo Bank or not. Find out more about Bendigo Bank’s free Home Loan Health Check service.