Paying off a home loan can feel like an overwhelming task, especially with interest rates and repayment schedules to consider. However, there are a number of strategies you can employ to pay off your Australian home loan faster, without breaking the bank.

In this blog post, we'll outline ten such strategies, providing practical tips and insights along the way.

Strategy #1: Make More Frequent Payments

One of the easiest ways to pay off your home loan faster is to make more frequent payments. By making fortnightly or weekly payments instead of monthly payments, you can reduce the amount of interest you pay over the life of your loan. This is because interest on a home loan is calculated daily, so the more often you make payments, the less interest you'll pay overall.

For example, let's say you have a home loan of $500,000 at an interest rate of 4%. If you make monthly payments, you'll pay off your loan in 30 years and pay $359,348 in interest. However, if you make fortnightly payments, you'll pay off your loan in just over 24 years and pay $279,236 in interest. That's a saving of over $80,000!

Strategy #2: Use an Offset Account

An offset account is a transaction account that's linked to your home loan. Any funds you have in your offset account are subtracted from your loan balance when interest is calculated, effectively reducing the amount of interest you pay. For example, if you have a home loan of $500,000 and an offset account with $50,000 in it, you'll only pay interest on $450,000 of your loan balance.

Using an offset account can help you pay off your home loan faster because it reduces the amount of interest you pay over the life of your loan. Plus, you can still access your funds in the offset account if you need them for other purposes.

Strategy #3: Make Extra Repayments

Making extra repayments on your home loan is another effective way to pay it off faster. By paying more than the minimum required each month, you can reduce the amount of interest you pay and shorten the life of your loan.

For example, let's say you have a home loan of $500,000 at an interest rate of 4%. If you make an extra repayment of $500 per month, you'll pay off your loan in just over 22 years and pay $244,826 in interest. That's a saving of over $114,000!

Strategy #4: Refinance to a Lower Interest Rate

Refinancing your home loan to a lower interest rate can also help you pay it off faster. If you can find a home loan with a lower interest rate than your current loan, you'll pay less interest over the life of your loan, reducing the time it takes to pay it off.

For example, let's say you have a home loan of $500,000 at an interest rate of 4%. If you refinance to a loan with an interest rate of 3%, you'll pay off your loan in just over 27 years and pay $192,387 in interest. That's a saving of over $166,000!

Strategy #5: Utilise the First Home Owner Grant

If you're a first home buyer, you may be eligible for the First Home Owner Grant (FHOG), a one-off payment from the government to help you buy your first home. In some states and territories, you can use the FHOG to pay off your home loan faster by making an extra repayment.

For example, let's say you're a first home buyer in New South Wales and you're eligible for the FHOG of $10,000. If you use that money to make an extra repayment on your home loan, you'll pay off your loan in just over 28 years and pay $213,042 in interest. That's a saving of over $119,000!

Strategy #6: Consider a Split Loan

A split loan is a type of home loan where you can split your loan balance between a fixed interest rate and a variable interest rate. This can be a good option if you're worried about interest rate fluctuations, as the fixed portion of your loan will remain the same while the variable portion can fluctuate.

A split loan can also help you pay off your home loan faster because you can make extra repayments on the variable portion of your loan without incurring any penalties. This can reduce the amount of interest you pay over the life of your loan and shorten the time it takes to pay it off.

Strategy #7: Negotiate a Better Interest Rate

If you've been with your current lender for a while and have a good payment history, you may be able to negotiate a better interest rate on your home loan. This can be a good option if you're not in a position to refinance, but still want to reduce the amount of interest you pay.

To negotiate a better interest rate, do your research and find out what other lenders are offering. Then, approach your current lender and ask if they can match or better the offer. If they can't, consider switching lenders or refinancing.

Strategy #8: Make Lump Sum Payments

If you come into some extra cash, such as a tax refund or a bonus at work, consider using that money to make a lump sum payment on your home loan. This can help you pay off your loan faster and reduce the amount of interest you pay over the life of the loan.

For example, let's say you receive a tax refund of $5,000. If you use that money to make a lump sum payment on your home loan, you'll pay off your loan in just over 28 years and pay $220,603 in interest. That's a saving of over $111,000!

Strategy #9: Use a Professional Package

Many lenders offer professional packages to customers who have a high income or who work in certain professions, such as doctors or lawyers. These packages typically offer a discounted interest rate and other benefits, such as fee waivers or access to a dedicated relationship manager.

Using a professional package can help you pay off your home loan faster because you'll pay less interest over the life of the loan. Plus, the other benefits can help you save money on fees and other charges.

Strategy #10: Seek Professional Advice

Finally, if you're struggling to pay off your home loan or just want some expert advice, consider seeking help from a professional. A mortgage broker or financial advisor can help you understand your options and develop a strategy for paying off your loan faster.

Case Study Example: Sarah and John

Sarah and John are a couple in their mid-thirties who bought their first home three years ago. They have a home loan of $600,000 at an interest rate of 4.5% and are struggling to keep up with their repayments. They decide to seek professional advice and meet with a mortgage broker.

The broker suggests that Sarah and John refinance their loan to a lower interest rate and use an offset account to reduce the amount of interest they pay. They also suggest that they make extra repayments on their loan and negotiate a better interest rate with their current lender.

Following the broker's advice, Sarah and John refinance their loan to an interest rate of 3.75%, saving them over $100,000 in interest over the life of the loan. They also open an offset account and start making extra repayments on their loan whenever they can. They negotiate a better interest rate with their current lender, reducing their monthly repayments by $200.

After two years of following this strategy, Sarah and John have paid off $60,000 of their home loan and reduced the term of their loan by five years. They're now on track to pay off their loan in just 22 years and save over $200,000 in interest.

Conclusion

Paying off your home loan faster is not easy, but it is possible. By following the strategies outlined in this article, you can reduce the amount of interest you pay over the life of your loan and pay off your loan faster.

Remember, every little bit counts. Even small changes, like making extra repayments or negotiating a better interest rate, can make a big difference over time.

If you're struggling to pay off your home loan or just want some expert advice, consider seeking help from a professional. A mortgage broker or financial advisor can help you understand your options and develop a strategy for paying off your loan faster.

So, what are you waiting for? Book in a call with us today to see how we can help you pay off your Australian home loan faster and achieve your financial goals.

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business, and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

Book an obligation-free, complimentary consultation here today.

Ally Home Loans Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.