Imagine the freedom of owning a house with no home loan to repay. If you’re sitting on a 30-year loan, it can seem like a long way off. But small changes to how you live and structure your home loan could have an impact on the size of your loan and how long it could take you to pay it off.

The interest you pay each month is calculated based on how much you owe – your principal home loan balance. As your principal goes down, you pay less interest, and more of your repayments go towards reducing your principal. Here are eight ways to make that happen sooner.

1. Pay a lump sum

If you’ve come into a bit of money — whether from a promotion, inheritance, sale or tax refund – you could consider putting it towards your home loan. Unlike regular repayments, in most cases every cent of a lump sum payment goes towards repaying your principal loan balance. That’s because your regular payments cover the interest – it’s already paid, so any extra you put in goes straight into paying down the debt. There’s one thing to remember though – depending on the structure of your home loan, there may be early repayment charges, so it pays to check.

2. Consider splitting your home loan

If you think you’ll make extra or lump sum payments, it might be worth putting some of your loan on a floating rate. That way, you can make extra payments without incurring early repayment charges. A floating home loan could be in the form of a revolving credit, which acts like a giant overdraft. If you put all your earnings into your revolving credit and limit your spending, you should be able to minimise what you need to pay in interest each month.

Remember, floating and revolving home loans tend to have higher interest rates so it’s important to consider how much and when you’re likely to add those extra payments.

3. Cut back on the nice-to-haves to increase repayments

If you own your own home, you might have already cut down on some of the luxuries of life – but is there anywhere else your money could be better spent to pay off your loan faster? Remember, the less you owe, the less interest you pay, which means more of your repayments can go towards paying off your loan. Even putting a hundred dollars extra a month onto your home loan could mean significant savings in the long run.

4. Swap to weekly or fortnightly payments

Say you change to paying $1500 fortnightly instead of $3000 monthly. That means you’re knocking $1500 off your home loan two weeks earlier — with that reduced loan balance, you’ll save on interest. It’s little bits saved here and there, but it'll add up over a loan’s lifetime.

And paying weekly or fortnightly can also create bonus payments so you’ll end up paying a bit extra and may not even notice. For example, over a year you could make.

  • 12x monthly payments of $3000, which would be $36,000 paid to your loan.
  • or 26x fortnightly payments of $1500, which would be $39,000 paid to your loan.

5. Pay fees upfront

It’s common, easy and appealing to add extras – such as legal fees – to your loan, so you don’t have to pay for them upfront. However, the interest you’ll pay on those extras adds up over a few years. Instead, see if you can bite the bullet and pay them right away.

6. Review your situation

Most people set up their home loan and then don’t review it for years. But things can change – check to see that your loan is structured to best suit your current circumstances. Your situation can change quickly, and it’s important to review things regularly to see if you could be paying off your loan faster by upping your repayments or making a lump sum payment, for example.

7. Think shorter-term

Most of us set the term of our home loan for 30 years. But one of the easiest and most effective ways to pay it off faster is to calculate your home loan repayments over a shorter timeframe. Instead of 30, can you afford to repay your home loan in 25 years? That way, you could be home loan free sooner.

8. Keep repayments the same

It can be tempting to lower your loan repayments if interest rates drop. Instead, if you can, keep your repayments the same so that you could put more towards paying off your loan balance and reducing your interest costs.

What next?

Even if you’ve already taken out a loan for 30 years, with careful planning, you can pay it off faster and pay less interest, reducing the overall cost of your loan. If you want to talk about an existing home loan or you’re looking to get onto the property ladder, give us a call or visit your local branch – we’re always here to help.