For many of us, repaying a home loan or personal loan as quickly as possible is considered a top financial priority. It’s definitely a good idea to pay off debt sooner rather than later, and not let it grow.
A few simple actions can make a big difference to your debt over the long term and contribute to better financial wellbeing. Whatever type of loan you are currently paying off, here are some simple tips to help you reduce the life of your loan.
Switch to more frequent repayments
Weekly or fortnightly loan repayments can save you interest and take months (or even years) off your loan length compared to making monthly repayments.
- $2,000 per month = $24,000 paid off in 12 months
- $500 per week = $26,000 paid off in 12 months
Every extra dollar you pay will help to speed up the repayment process, but it is important to check the conditions of your home loan or personal loan first. Before you begin to make bigger or more frequent repayments, ask your lender if they allow additional payments and early repayments without penalties being applied.
Opt for an offset account
An offset account linked to your home loan is a great option which can make a difference over the long term. By having your income or savings in an offset account you can reduce the amount of interest you pay over the life of your home loan.
You can offset up to 100% of the balance of your linked account against the balance of your loan. This lowers the amount of interest you pay and ultimately helps you pay your mortgage off sooner.
Home loans often have a redraw facility and this is another way to reduce the interest that is added to your loan. You can find out more about the differences between an offset and a redraw if you'd like further information.
Put a little more into your loan
If, and when, your circumstances and budget allow you to, it’s a great idea to pay more off your home or personal loan.
- If you have a variable rate loan and the interest rate drops, continue to pay the same amount you did at the higher rate.
- Round your repayments up. For example, if your repayment amount is $545 increase it to $550 – it may only be a few dollars but over time this will add up.
- If your income increases, remember to increase the amount of your regular repayments.
- Make a lump sum payment into your loan account when you can. For example, if you receive a tax refund you may find it beneficial to put it towards your loan.
Know your options
Whether you have an existing loan or are considering your first home loan or a new personal loan, make sure that you have the right one for your individual needs. Research and compare the different options to give yourself the best chance to repay the debt faster.
If you would like help understanding your loan options, you can speak to our friendly team on 13 25 77. Alternatively, make an appointment to chat to one of our home loan specialists.
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