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Best ways to settle your home loan quickly

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Follow these four easy and practical tips to shave  some time off of your mortgage term:

Owning a home outright can be a fulfilling accomplishment. In order to reach that point, however, you have to be able to take on the responsibility of paying for your home loan.

Financial freedom is the ultimate goal of every homeowner. While home loans typically last for 20 to 30 years, there are many practical ways on how to shorten the repayment period.

Follow these four easy and practical tips to shave some time off of your mortgage term:

1. Make extra repayments
One of the most uncomplicated ways to settle your home loan quickly is to pay more than required each month. Making extra repayments is a good way for you to also save on your home loan. 

Paying extra is easy if you can afford it and if your lender allows you to do so. If ever you want to test the waters first, ask if your lender offers this feature on the mortgage product you are subscribed to. Some lenders may allow extra repayments only for a certain number of times annually while others may have amount limitations.

Every extra dollar you put into your mortgage hits the principal. In the long run, the amount charged with interest will shrink. If ever you want to instantly feel the relief of having the principal of your home loan reduced, try making a lump-sum payment. In times when you get work bonuses and tax refunds, see if pouring this amount into your home loan repayment is possible. Not only will you save on interest, but it will also reduce your home loan term. 

2. Get a 100% offset account
An offset account is heaven-sent to those who want to not only pay their home loan sooner but also save on the interest. Having an offset account is similar to having a high-interest savings account --- the only difference is, you do not get to keep the interest the money in your offset account yields.  Instead, whatever you have in your offset account is accounted daily against your loan balance, ultimately reducing the mortgage interest charged to you.

There are full and partial offset accounts. For the purposes of helping you pay your home loan quickly, choose the full offset account option if possible to take advantage of the savings it can give you.

For example, say you have a $400,000 home loan at 4.24% interest rate. If you link a full offset account with a balance of $50,000, the mortgage interest will only be applied to $350,000 of the principal.

One of the main advantages of having an offset account is that you can easily access the pool of funds you have saved. You can also contribute to it and build up your savings. A technique most offset account holders use to ensure a steady stream of contribution is paying their salaries direct into the account. The more you have in your offset account, the higher the savings you can get.

3. Consider changing your repayment schedule
Time is important when paying off a home loan --- the more frequently you pay, the quicker you will finish settling your financial obligation. Changing your repayment schedule from monthly to fortnightly can do a lot to pay your home loan early.

Monthly repayments of $3,000 will let you pay a total of $36,000 at the end of the year. If you change this to $1,500 a fortnight, you will have paid $39,000 by the end of the year. This is because there are 26 fortnights in a year. Paying fortnightly allows you to make 13 monthly repayments every year. That added $3,000 will make a significant dent to the principal of your loan without breaking the bank.

4. Stay away from honeymoon rates and interest-only loans
Honeymoon rates and interest-only loans are attractive to first-home buyers. However, if you want to pay your home loan quickly, it is not recommended to get these offers.

Honeymoon or introductory rates are only attractive at first, given that you are offered a very cheap rate. Once the honeymoon period is over --- usually after six months to two years --- your loan will revert to a considerably higher variable interest rate.

In short, most introductory rates are nothing but a marketing ploy to get borrowers to try a mortgage product. There are no significant savings when you have a honeymoon rate. Most of the time, those who start with an introductory rate end up paying more.

On the other hand, you are putting yourself at a great disadvantage if you start with an interest-only loan. For a certain period of time, which usually lasts up to five years, you will only have to pay the interest charged to your loan monthly. Once the interest-only period expires, your loan will switch to principal and interest. You will be surprised how much you will be required to pay each month once the switch happens. 

One final tip to help you pay off your loan faster
If you want to finish your financial obligation sooner than expected, then begin with choosing the home loan product that suits your needs. Look beyond the interest rate and read the fine print of each mortgage product that catches your interest.

Also, it is not all about the big banks. While large banks have already built their reputation, there are smaller lenders who might be able to provide you with a more competitive home-loan product.

Lastly, consult a mortgage broker who can help you find the best home loan. Know what you want and do not be afraid to demand and negotiate.

Curious about how much you can borrow for a home loan? Try Your Mortgage's home loan calculator here. You can also talk to a specialist by clicking this link.

Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker

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