5 Simple Strategies to Help Pay Off Your Home Loan Faster
If you have a 30-year mortgage, it may feel like you’ll be paying off your home loan for most of your life.
Having this massive debt lingering for such a long time can prevent you from enjoying early retirement or taking your dream holiday. So, the sooner you get rid of your home mortgage, the better off you’ll be down the track.
Since property is often both a long-term investment and a huge expenditure, not having a plan can really impact your lifestyle.
So, how do I pay off my home loan faster?
One of the most common questions I get asked is, “What should I do to shorten my mortgage?”
While there is no “one size, fits all” solution, I’ve got 5 useful tips to help you meet your goals and pay off your home loan sooner. Keep in mind – this is just general information and not financial advice. It doesn’t take into account your specific circumstances and should only be used as a guide.
5 helpful steps to pay your home mortgage in half the time.
Your home loan is probably the biggest investment you’ll make and it’s usually the debt that most people would like to get off their back as quickly as they can.
While most mortgages often come with a 30-year term, it doesn’t necessarily mean you have to have it for that long. These 5 helpful tips can help you get ahead on your loan and potentially save yourself a significant amount of money on interest charges.
- Purchase your main residence.
Home ownership is the Great Aussie Dream!
Securing your main residence as early as possible can help you build a strong foundation for your property investment strategy towards achieving your financial freedom.
My tip is to pay a little extra off your home loan each month or make frequent payments to shorten your mortgage time. You’ll be surprised how much this compounds. Just check that there are no penalties with paying off your mortgage sooner.
Here is an example:
Mr. Warren decides to contribute an additional $400 per month on top of his $2,400 monthly home loan repayment, paying $2,800 each month.
Over the span of 12 months, he pays $33,600, which is roughly equivalent to two additional months’ worth of payments each year. This shaves about 6 years, 3 months off Mr. Warren’s 30-year loan term and saves him around $67,500 in interest.
- Use equity to build your property portfolio.
If you have already paid off some of your main home loan, that means you already have equity. Equity is the difference between the current value of your property and the amount left towards your mortgage. When set up correctly, it can be used to finance the purchase of an additional property.
Here is a sample scenario of building your portfolio through equity:
Mrs. Park has a property that’s worth $600,000 on which she still owes $250,000. That means she now has a home equity amount of $350,000 that she can use to purchase one or two additional properties – this can help build her portfolio and use it to earn more by renting them out to cover costs.
- Set up your accounts in your best interest.
A home loan offset account allows you to offset or reduce the interest charged on your mortgage. This is basically a transaction account attached to your home loan which you can make deposits or withdraw funds as you would with a regular transaction account.
Essentially, when the lender calculates your monthly interest repayments, they will subtract any money you hold in the off-set account from the home loan balance and then determine the interest repayment.
Setting up an offset account can significantly reduce your monthly interest costs – allowing you to contribute more of your regular payments towards paying down the loan principal. This, in turn, can help you pay off your mortgage sooner.
- Allow your assets to grow.
Property values tend to grow over time depending on the market conditions.
Cosmetic renovations can increase your existing property value, you could also consider a modernised kitchen, or an additional bathroom can definitely make a huge difference in the home value. Consider these options to make the most out of your property, especially if you are planning to sell in the next few years.
- Sell your investments.
If you sell one or two investment properties after 10 to 15 years, you’ll often find that the capital value has increased significantly. Keep in mind that prices can fluctuate, so if you are planning to sell a property, wait until the market is favourable to maximise your gain.
Then, you can use these gains to pay a good portion off your outstanding mortgage balance or eliminate the mortgage altogether.
Are you ready to move towards financial freedom?
Paying off your home loan sooner can be a positive move towards financial freedom; and to do that, it involves planning your investment strategies as early as possible. This way, you can leave more cash in your pocket over time, and have fewer worries so you can enjoy the fruits of your labour.
Remember, this is just general information. As always, speak to your financial advisor to get advice that’s tailored to your specific circumstances.
We can help you choose the right properties to add to your portfolio
My team and I at Worth Property Investing are passionate about helping you make the right property purchase that will contribute towards building your portfolio.
Think of us as your property buying partner, here to support you in making the ideal property decisions. As your trusted, licensed Buyer’s Agents, we do everything from searching, connecting, researching, bidding, negotiating and securing the best properties.
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