Pay Off Your 30 year Home Loan 6 Years Faster 🎉 [10 Easy Tips]

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Looking for ways to pay off your home loan faster? Then keep reading.

In this post I’m going to show you how to pay off your 30 year home loan faster.

You’ll also see how I used these strategies to chunk off 6 years from my own home loan by maintaining my current home loan repayments!

pay-off-home-loan-faster

These 10 simple tips will help you pay off your home loan YEARS faster. Reference ASIC Money Smart Calculator.

All of these strategies are working GREAT right now (in 2021).

With that, here are the strategies you’re going to learn about:

 

 

1. Get the Right Type of Loan

Here’s the deal:

Before you can even think about paying your home loan off faster, you need to have a home loan type that will allow additional repayments.

For example, a fixed rate home loan only allows a maximum of $10,000 in extra repayments per year.

This is a huge problem…

home buying mistakes

The wrong type of loan is as bad as buying the wrong type of home!

If you have committed to a long-term fixed rate you may be stung with penalties as you can’t pay more than ten thousand dollars in extra repayments per annum.This hinders your ability to pay off your loan faster.

Fortunately, there’s a simple solution to this problem…

…The split rate home loan.

pay-off-home-loan-faster-split

A split loan will give you the flexibility to pay as much as you like off the variable part as well as having some certainty when it comes to the fixed loan. For example if you have a $500,000 loan, you can split it 50/50. This would mean that you have $250,000 in variable and $250,000 in fixed. You can split your loan any which way 90/10 or 70/30 or 50/50. The choice on how to split it is ultimately yours  

Step-by-step process to split your home loan:

  • Decide how you would like to split your home loan (50/50, 70/30, 80/20, etc).
  • Contact your mortgage broker and let them know you’d like to split your home loan.
  • Complete a variation to split your home loan.
  • Double check with your bank that your 100% offset account is correctly connected to the variable split.
pay-off-home-loan-faster-different-splits (1)

You can look at different types of splits banks will require a minimum $50,000 split but a few examples include a 50/50 split, a 70/30 or an 80/20 home loan split.

Read More: How to choose between variable or fixed rate home loans

 

2. Don’t use interest-only repayments

This is a simple strategy that can literally cut $37,931 in additional interest from your loan:

Although less common today, many lenders will offer the opportunity to pay interest only on a loan. There can be certain times in which an interest-only loan makes sense—like for a construction of a property or even when buying an investment property. The benefits are that you have a lower repayment over the period of time that you’ve got the interest only repayment.

The downside is that it can cost you tens of thousands of dollars and you won’t pay down any principal on your loan.

Paying principal and interest at the same time makes sure you can get your loan cleared, reducing the effects of compounding interest and repaying your loan much faster.

As Albert Einstein said, “compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. Compound interest is the most powerful force in the universe.”

 

3. Act like your loan has a higher interest rate

This is one of the BEST ways to pay off your home loan faster. We call it the 2x strategy. In fact, this single strategy can help you pay down your home loan 10 years faster.

pay-off-home-loan-higher-rate

First, work out what your home loan repayments would be if interest rates doubled to 8% (the long-term average standard variable rate).

Using the ASIC repayment calculator, work out what your repayments would be if interest rates went to 8%.

In my case, they would almost double to $3869 per month, being an additional $1,557 per month.

pay-off-home-loan-extra-payment

This increased repayment would save 12 years from my loan term, and reduce interest costs by $153,527.

Yeah, that’s a lot of money.

Another added benefit from this technique is that if interest rates go up in the future you won’t be caught out because you are already making extra repayments!

information-session

 

4. Make extra lump sum repayments

They say every cent counts and it is certainly true when it comes to your mortgage. Paying above regular minimum repayments is a surefire way to pay off your mortgage faster. The best part of it is you don’t need to pay much more to reap the rewards.

For example, on a 30-year home loan of $500,000, paying only an extra $25 a week or $3.50 per day could see you become mortgage-free two years three months ahead of schedule! This might make you think twice before grabbing that cup of coffee next time!

Making regular lump sum payments can help you pay off your loan faster. Every little bit counts!

Making regular lump sum payments can help you pay off your loan faster. Every little bit counts!

Tax returns or bonuses are a handy source of cash that could help you pay off your home loan sooner. These windfalls are money that you already learned to live without, so it’s unlikely you’re going to miss the money.

Using these windfalls to add to your mortgage will have a drastic impact on your loan balance, which will accelerate the time it’ll take to pay it off. As with the same example we used earlier, on a $500,000 loan, making a lump sum repayment of $10,000 in the second year will cut 10 months off your loan term and save you $12 800. It might even be worth making it an annual habit paying your tax return in your loan.

 

5. Use a 100% Offset Account

It’s no secret that 100% offset accounts are the best way to pay off your home loan faster.

Use a 100% Offset Account

You can deposit your pay, gifts, bonuses, tax refunds into your offset account. Every dollar in the offset account is reducing your home loan balance.

That said, there are still heaps of people who do not fully take advantage of a 100% offset account..

pay-off-home-loan-offset

As you can see in the example above, every dollar in the offset reduces how much interest is paid on your home loan.

This is also the case if your loan has a redraw facility. The redraw or offset doesn’t even need to be $20,000. It can be as small as $1.

If you aren’t using an offset account, get in touch with your mortgage broker today to look at switching your home loan type or to at least check to see if you have a redraw facility.

Read More: 13 Mistakes Nearly all First homebuyer make 

 

6. Get your budget in order

As the saying goes, ‘money is a cruel master but an excellent servant.’ Make your money work for you to its maximum capacity by doing a budget.

Half the battle with budgeting is just being aware of what you are spending.

pay-off-home-loan-budget

Half the battle of budgeting is just being aware of what you are spending and working out what is essential and what isn’t.

All you need to do is:

  • ✅ Download either app
  • ✅ Insert your bank account feeds
  • ✅ Let the app start categorising expenses
  • ✅ And being aware of what you are spending your money on

Read More: 11 Hidden Costs of Buying a Home in Brisbane

 

7. Check out other banks

Refinancing your loan can cut your interest costs by THOUSANDS.

Does this mean you should go out and refinance your home loan today?

No.

Instead, we recommend talking to your mortgage broker to see what deals are available or if your existing bank is willing to reduce your current interest rate.

This strategy works so well that even a small reduction of 0.75% can pay off your home loan 39 months earlier. That’s almost 4 years!!!!!

pay-off-home-loan-switching

After switching banks and reducing home loan interest rates this person cut 39 months off their home loan term.

There are also some banks that offer rebates and cover the fees for switching your home loan.

Read More: 7 reasons to refinance your home loan in 2019

 

8. Cut up your loan and make fortnightly repayments

This is similar to technique #3 from this guide—Act like your loan has a higher interest rate—but with an important twist.

pay-off-home-loan-faster

Instead of just paying extra, you split your existing monthly repayment.

In other words, you take your monthly payment, divide it by 2 and make it each fortnight.

pay-off-home-loan-extra repayments

For example:
Let’s assume your minimum monthly repayment is $1,000. Cut this in half to get $500. Then pay $500 every fortnight. In a year you will make one extra monthly repayment of $1,000.

Halving your monthly amount per fortnight means you actually pay 13 monthly repayments per year instead of 12 and this seemingly small amount will effectively reduce your loan by 4 years and 9 months!

 

9. Don’t add fees to your loan

Here’s the truth, if you want to get a home loan, you are going to have to pay some bank fees which can add up to $500-600 per application:

  • ✅ Loan application/Establishment fees. Some lenders charge on the initial drawdown of your loan.
  • ✅ Document Preparation fees. Lenders may charge this to prepare your home loan contracts before approval.
  • ✅ Bank valuation fees. These are usually waived but if you need a valuation they may charge you.
  • ✅ Other fees like annual fees! Sneaky annual fees can cost up to $400 per year.

With that being said, the most expensive fee you can pay when getting a loan is lenders mortgage insurance (LMI). 

However, the most expensive fee you can pay when getting a loan is Lenders mortgage insurance (LMI). Lenders Mortgage Insurance can be in the tens of thousands!

lenders mortgage insurance costs

LMI is very different across the various lenders and comparing banks on this cost, in this case, saved $6,044.

The smaller your deposit, the more LMI you’ll pay. On a $600,000 home with a 10% deposit ($60,000), you’ll be asked to pay insurance of around $10,000.

In the example above, $15,741 in lenders mortgage insurance carried over 30 years costs almost double in interest!

While it might not always be possible to pay the lenders mortgage insurance costs up front, it is worth considering as this can save you a lot of money.

Read More: 11 Hidden Costs of Buying in Brisbane

 

10. Consider non-bank lenders

People love security so they tend to go with the bigger banks.

But what might surprise you is that the smaller lenders are just as secure as the big banks..

How?

The Australian government’s deposit-taking guarantee.

According to the Australian Securities and Investments (ASIC:) The Australian Government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as your bank, building society or credit union. This means that this money is guaranteed if anything happens to the ADI.

What does that mean for you as a borrower? This means you can comfortably get your home loan from smaller lenders. This might be a better option for you because smaller lenders are in a strong financial position and need to compete against big banks.

Often the smaller lenders need to be more competitive than the big lenders to win market share, and the benefit for you is that you could receive a lower interest rate. 

Smaller lenders have an added benefit of offering lower interest rates which will enable you to pay off your loan faster.

Read More: 7 Ways of Creating Home Equity Faster

 

11. Think about investing

So you have paid down a big chunk of your home loan.

Now what?

It’s time to think about investing.

investing in shares or other assets other than property

Keep in mind that this can be a risky option and you should always talk to a professional like a financial adviser first.

If you want to invest in property, you could even consider Rentvesting.

Rentvesting is living where you want and investing where you can afford.

Alternately you can look at investing in shares.

Alternatively, you can look at investing in shares. There are lots of different ways to invest in shares:

  • 📈 Buying shares directly
  • 📈 Buying shares using an Exchange Traded Fund (ETC)
  • 📈 Buying shares using an index managed fund
  • 📈 Buying shares using an active fund manager

Read More: How to go from Zero to 3 Properties in 3 Years

If you are looking for the best home loan in Brisbane or wanting to buy a home or refinance speak with one of our experienced mortgage brokers to walk through the next steps with you.

Mortgage Broker Brisbane

The Hunter Galloway Mortgage Broker Brisbane team is here to help.

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At Hunter Galloway we help clients get The best Home Loans in Brisbane in this competitive market, we give you the actual strategies that have helped other home buyers like you secure a property when there have been 5 other offers on the table! Enquire online or give us a call on 1300 088 065.

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Approximately 40% of home loan applications were rejected in December 2018 based on a survey of 52,000 households completed by 'DigitalFinance Analytics DFA'. In 2017 to 2018 Hunter Galloway submitted 342 home loan applications and had 8 applications rejected, giving a 2.33% rejection rate.
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