• How to pay off your home loan faster

    How to pay off your home loan faster

    If your goal is to repay your home loan in the shortest time possible, you should make sure your home loans allows you to make additional repayments on top of your minimum repayments.

    There are several ways to pay off your loan faster:

    Make fortnightly repayments

    One of the simplest ways is to pay half your monthly repayments every fortnight. Paying your repayments every fortnight, allows you to take advantage of the 26 fortnights in a calendar year.  This can really work in your favour as you're effectively making an extra month's repayments across the course of a year, which, if you get paid fortnightly you might not even notice. This can make a significant difference over the life of the loan.

    Utilise an offset account

    Another option is linking an offset account to your home loan and using the offset account as your main transaction account. 

    An offset account is a transaction account linked to your home loan that may help reduce the interest you pay on your home loan. The balance in the transaction account effectively offsets your outstanding home loan balance thereby reducing the overall interest.

    You might deposit your salary into this account and keep any extra savings here. The balance that interest is calculated on will be reduced by the amount in your offset account effectively reducing the monthly interest payable. You need to be aware though, that you will not earn interest on your savings in your offset account.  

    Offset scenario

    Chloe and James have a $400,000 variable rate home loan and $40,000 in a RAMS Action with Offset account. As the offset account is linked to their home loan, the amount on which they pay interest is $360,000 ($400,000 – $40,000). If the interest rate on the loan was 3.00% p.a., the interest for the month would be $917, which is $102 less than what they would have been charged without the offset facility.1 The good thing is, the money sitting in the transaction account is easily accessible when required. 

    Assumes a 31 day month and no other transactions on the home loan or offset account during the month. No interest is paid on the funds in the RAMS Action with Offset while it is linked to the RAMS home loan.

    Make extra repayments when you can

    You also have the option of paying more than your required monthly repayment amount, to pay your mortgage off faster and build equity, if your home loan allows you to make additional repayments. When the opportunity arises, you can also make lump summary payments. A tax refund is one example of a lump sum that could form a handy extra repayment.

    1 The calculations used in this scenario are for illustrative purposes only. The calculations do not represent actual rates or products. Offset facility is not available to company or trust borrowers and other conditions and limitations apply. 

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    About the author

    • Raymond

      Raymond A Ram is the RAMbassador for RAMS Financial Group. Raymond works with the RAMS team to bring simple, helpful and expert information on home loans and savings accounts to life with his down to earth and cheeky personality. He enjoys seeing everyday Australians turn their dreams of saving for a goal or getting into a home a reality. 

      Growing up in Goulburn, NSW, Raymond was brought up with good old-fashioned Aussie values of hard work and a fair go. It soon became apparent that Raymond wasn't content for the conventional path of grazing, producing the very best wool, and finding a nice sheep to settle down with. So it wasn't long before his passion for performing and his talent as a likeable larrikin shone through - landing him a few roles such as 'RAMlet'. He was even tipped to play RAM-bo at one point but chose to become star of the small screen instead as RAMbassador for RAMS. He now finds this role so much more rewarding.

      Contact your local RAMS Home Loan Centre about your home loan options.

      Raymond A Ram

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  • Disclaimer:

    This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.