You may be at a point in your life where you’re asking yourself: How can I maintain my current lifestyle, but own my home sooner?
Are you ready to pay off your property more quickly, but not willing to go on a strict budget that has you penny-pinching and foregoing activities, because of the trade-off?
It is possible to pay off your home sooner and maintain your current lifestyle by doing a few things differently.
Have a Full Picture of Your Home Loan
The first step is to understand your home loan and the full picture. How much do you owe? How much are you paying? Is your interest fixed or variable? How much is your interest? What are your other debts?
Put together a full picture of your financial situation as the basis to start from.
Paying Off Your Home Sooner
The following ideas won’t make a huge impact on your lifestyle and may enable you to pay off your home sooner, so you can finally own it outright and say goodbye to mortgage payments:
- Consolidate Your Debt or Snowball It
When you get a full picture of your financial situation, you may come to realize that you have a lot of smaller debts that you’ve accumulated. You may be able to consolidate all of your debts into a home loan with a lower interest rate.
Another option is to make minor tweaks to your spending, so you can pay off your smallest debt first and then take that previous debt payment and include it in the payment of the second largest debt to pay it off quicker and so on and so forth. Either keep snowballing small debts to pay them off quicker or consolidate your debt.
- Make Fortnightly Payments
If you can afford to or find some extra cushion in your budget after assessing your financial picture, you can increase your home mortgage payments from monthly to fortnightly.
This small change can make a drastic impact. In fact, depending on your situation, just doing this could allow you to pay your home off almost five years sooner and save thousands and thousands in interest.
- Utilise an Offset Account
An offset account is an account that is linked to a variable rate loan. What this account does is allow you to reduce the balance of your home loan for the purpose of calculating interest.
For example, if you keep $3,000 in your offset account and you have a home loan of $350,000 over 30 years with a 5.20% interest rate per annum, you’ll only pay interest on $347,000 due to this offset. This means you’ll pay off your home loan approximately three months earlier and save close to $8,000.
- Increase the Amount You Pay
If you get a pay raise or switch jobs and earn a higher salary than what you were previously living off of, use that increase to pay more on your home loan.
Say, for example, you have a $350,000 home loan with a 5.20% per annum interest rate over 30 years with a monthly payment of $1,922. If you increase your monthly payment by $100, you’d save $39,913 and pay your home loan off 3 years sooner.
If you own a rural weekender outright, you can also look at earning an income from your rural weekender and apply that income towards your home loan payment.
- Put Bonuses or Lump Sums Towards It
If you receive a tax refund, bonus, inheritance, or any other lump sum of money, put it towards your home loan. This lump sum payment could make a massive dent in your debt and help you pay off your loan sooner.
If you put a $20,000 lump sum payment towards your $350,000 home loan (based on the same specs above), you’ll cut 3.5 years off the length of your loan and save a little over $62,000.
- Move Your Home Loan Over to a Loan with a Lower Interest Rate
Have a look at the interest rate you’re paying and compare it to home loans and interest rates that the banks are currently offering. You might be able to reduce the total amount you’ll pay over 30 years and then implement some of the strategies above to pay it off even faster.
Be sure to ask questions and pay special attention to the fees of switching as well as the features and conditions of any new loan agreement
Tip: Consider reading our post, “Taking the Right Refinancing Steps.”
Follow our blog for more helpful tips and to stay up-to-date on current real estate news.
If you have questions about buying a home or would like to speak to a real estate agent, contact us today. We’d be happy to offer advice.