For most people, mortgage repayments are part and parcel of having a house. Home loans come in a variety of shapes and sizes but, whatever they look like, it’s better to pay off your mortgage sooner rather than later.
So, is it possible to repay your home loan faster? And how can you do it?
What are your options?
Alright, let’s cut to the chase.
There are a few options you can take to reduce the amount of your mortgage repayments. Finding the right option for you could wipe months, or even years, off the life of your mortgage.
Use an offset account
You may be familiar with an offset account. If not, no worries; the concept is pretty simple.
In short, an offset account can help you pay off your home loan faster. Doesn’t that sound appealing? Here’s how it works…
Think of an offset account as if it were a regular savings account that is attached to your home loan balance. But rather than earning you interest like a typical savings account, the balance in your offset account offsets the interest payable on your home loan.
In other words, if you have a home loan, you pay interest on the amount you owe the bank. But the sum of your offset account is subtracted from that figure, leaving you a smaller balance to pay interest on. Whatever’s in your offset account, will help reduce the interest you pay.
The maths looks like this:
- You have a $500,000 home loan.
- Your pay-cheque just cleared, bringing the total balance in your offset account to $7,500.
- The daily interest on your home loan is calculated against a total amount of $492,500, which is the total home loan ($500,000) minus the amount in your offset account ($7,500).
So, the faster you can grow your offset account = the less interest you pay on your home loan = the faster your home loan is paid off = the more you save!
To accelerate your repayments, it’s recommended to keep as much money as you can in your offset account. You can have your salary paid into the account too.
Most banks only provide an offset account on variable loans. But there’s a certain better big bank (ahem, us) that offers a 100% offset account for both fixed and variable rate loans.
Yep, that’s right.
Our Complete Home Loan package offers full offset facility for both fixed and variable loans.
It’s important to note that an offset facility can only be linked to one loan at any one time. A maximum of six offset facilities can be linked per loan account and a linked offset facility must be in same customer name.
Make extra repayments
If you can, extra repayments can speed up your journey to homeownership too.
It might not be easy, but extra repayments can save you thousands of dollars and can potentially take years off your home loan.
Some folks choose to put their tax returns towards their mortgage repayments, while others set aside small weekly sums (as little as $50) to cut dollars and time off the life of a mortgage.
Utilise a redraw facility
This might be something you’ve heard of. Briefly, it’s a way of making extra repayments.
A redraw facility shares some similarities to an offset account, but they offer different things. And depending on your circumstances, one option may suit you more than the other.
Basically, a redraw is the sum of what you’ve been able to contribute in extra repayments and it 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 $500,000 home loan and your monthly repayments are $2,500.
- Each month for the last six months you’ve paid an extra $200 into your home loan.
- Using the redraw facility, you can redraw $1,200 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.
If that sounds handy, it is. And it gets better. Anything you can contribute to your redraw facility can be used at a later point.
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.
If there are numbers and blocks of time flying around your mind, don’t worry. Our repayments calculator can help you play around with every detail of your home loan to help find a repayment method that works.
Do what’s best for you
Remember, your mortgage is unique to you, just like the house you’re paying off and the individuals living inside.
It’s not a one-size-fits-all situation and if you want to shave some time off your mortgage, it needs to be done in a way that suits you.
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