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Hacks for how to pay off your home loan faster

Line your own pockets, not the banks. Here are some simple short cuts to pay down your home loan faster.

1.Get a great rate that stays great

Honeymoon offers are just that. They never last. And once you’re hitched with a lender, you’re often blind to what’s going on behind your back- they could be cheating on you with rate creep and fees. This can cost tens of thousands of dollars over the life of your loan. That’s why it’s important that every eligible customer has a consistently low rate from Day One until Day None. And a good broker should pass the same rate and savings onto you for new offers from the lenders.

What should you do? Complete an online obligation free assessment and enjoy the long honeymoon.

2. Time is money

The shorter the loan, the less interest you’ll pay. It’s that simple. Do you know why the banks want to lock you into a 30year loan? Then tempt you to refinance every 5 years? Because just when you’ve been starting to climb that ladder, you slide down that snake and have to start back all over again.

So whenever you refinance, try not to default to a restart. Make sure you refinance with the number of years you have left. Or less! You choose the loan term you want. The shorter the better. You should note, the shorter the loan term, the higher the periodic loan repayments will be, which is why you pay your loan quicker with less interest.

What should you do? Don’t restart, reduce.

3. Fast-track your savings

You could score a lower rate by moving to a different lender. But why not keep making the same repayments as what you were paying with your current lender? You’re already used to paying that amount onto your loan, and if you keep it up on our lower rate, you’ll turbo-charge your savings and nail your loan in no time.

Let’s break it down. If you moved from 3.88% (around the market average) for an owner occupier principal & interest loan of $400k to an even lower rate lets say 3.09% of the same loan amount and remaining loan term, you could save $63k in interest. By deploying those savings back into principal repayments on your loan, you could cut about 4 years off your loan and could end up saving as much as a whopping $97k off your loan!

What should you do? Keep your current repayment amount and use those savings to fast track to the finish line.

4. Put more in your redraw

Redraw is a great way to cut years off your loan without locking away your savings. Each deposit immediately reduces your loan balance by the same amount and reduces your interest.

Let’s break it down. If you have money sitting in your savings account (at a rate less than your home loan rate) your money will be working harder for you if you put it in aredraw. So, if you had $100k in an everyday savings account at 2%, you’ll earn $2,018 across the year in interest (and you may be taxed on that depending on your income threshold!). But if you put it in a redraw at 3.09% you’d save $3,090 in interest across the year – and not lose any of it in tax either! We can’t give you tax or financial advice so go see your advisors to explain it more.

What should you do? Unless you can get a better savings rate elsewhere, pop as much as you can into a redraw.

5. Be more regular

Home loans have always defaulted to monthly payments. Lenders want it that way because the less often you pay during the month, the more interest you pay them. Just by making fortnightly or weekly repayments, you will reduce your loan amount quicker. BAM!

That’s because interest is calculated on your daily balance. So the less your balance is each day, the less interest you pay. Ask your broker for frequent payment method – weekly or fortnightly.

What should you do? Pay weekly or fortnightly to reduce interest repayments.

6. 13 months a year!

Lenders split the year so you pay less. We all think there’s just 4 x 7 days each month, but only February has 28 days. The extra 2 or 3 days each month can add up to a whole extra month over the year. Rather than calendar months, Ask your broker to work the whole year into 52 weeks or 26 fortnights. So every year you get 1 full monthly payment ahead, which adds up to around 4 years off the life of the loan (on an average loan of $400k over 30 years)!

What should you do? Add a month and subtract years off your loan by paying weekly or fortnightly.

7. F*** fees

The big banks charge Americans $11.45 billion (according to CenterOf Responsible Lending in 2017) every year in excess interest costs & fees. They sting you to apply for the pleasure of getting a loan, every month for being a customer, and if, shock-horror, you ever want to leave.

Please reference: The Center of Responsible Lending by highlighting the text and inserting the link into the text please.

https://www.responsiblelending.org/media/report-fdic-data-shows-banks-collected-1145-billion-overdraft-fees-2017

These fees quickly add up; they could be thousands over the life of an average market loan. Ask for no fees. You should be rewarded you for being a customer, not sting be stung!

What should you do? Stay clear of lenders who charge you to join, stay or leave.

8. Every little bit helps

Even the smallest extra repayments will make a big dent in your mortgage. Can you afford to put in an extra $50 a fortnight? It really does make a difference. For instance, an extra $50 on a fortnightly loan repayment, on a $400k loan at a low rate, slices nearly 2 years and about $20k in interest off that.

What should you do? Make extra payments frequently.

9. Totally lose it!

Follow all our Home Loan Hacks and you’ll go from a home loaner to owner in no time. For instance, if you took an average home loan of $400,000 for 30 years at 3.88% with another lender paying monthly with no offset funds, and moved to a better rate, say 3.09% paid weekly, and made extra repayments of $50 per week, you could save a game-changing 8 years and $123,000 interest over the life of your loan.

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