When buying a house, very few people can purchase without securing a home loan first. The monthly home loan repayment amount can be quickly estimated using a Bond repayment calculator, but it’s important to remember that there are other costs associated with a home purchase too. From transfer duties to the tax levied, as well as conveyancing, initiation and bond registration fees, the costs can mount.
But, did you know that you can shave off years from your home loan repayments? In fact, the past few years have seen a rise in the number of customers who no longer want to wait out the standard term to pay off their bonds. After all, given that it is such a large and long-term financial commitment, paying off your home loan quickly can save you a lot of money in the long run.
Benefits of paying off your bond quicker
Ultimately, the biggest benefit of settling your home loan faster is that over the loan term you will save on interest costs. Once your home is paid off, then your monthly expenses decrease, which means that more money is freed up to deposit into things such as retirement savings or other debt repayments. Another great advantage is that you also minimize your financial risk and when you do eventually sell, you’ll make a greater ROI on the sale if you have less outstanding on the home loan.
5 Tips for paying off your home loan faster
Once your bond has been approved and the initial home purchase payments are sorted, then you’ll begin your monthly bond repayment term. Depending on your home loan provider, you could have anything from 20 to 30 years to pay off your bond. However, this doesn’t mean that you can’t pay off your home loan that much sooner. Here are some of the ways you can pay it off earlier:
Deposit any available cash upfront
Any extra available money that you have, a year-end bonus, for example, can also be deposited into your bond account. This not only allows you to pay off the bond faster, but it will also provide tax benefits. Homeowners should note that the interest saving and impact on the loan term would be less if the homeowner was further into their home loan period, rather than being at the beginning stages of the term. This is because of compound interest (i.e. the interest portion of the monthly repayment is highest at the beginning of the term and slowly decreases as more of the bond is paid off.)
Treat the loan as a savings account
Adding just a little extra money – i.e. more than the required minimum monthly instalment – to your monthly bond payment can make a big difference. By moving any excess money into the home loan account each month, you’ll be decreasing the outstanding capital balance and reducing the loan term as a result. If you have an access bond facility, you can treat your bond as a savings account by depositing any extra cash you might have into the loan account. You can then later access this capital through your home loan if an emergency arises.
Raises and bonuses? Add those too!
Whenever you receive a raise or a bonus, strongly consider adding that to your bond account too. Any extra cash you receive can and should go towards paying off your bond and shortening that loan term. This won’t always be the case - such as a pandemic year where that extra cash might be needed to fund unexpected living expenses - but where it can be done, you will find the reward is worth it.
How about cash backs received from tax returns?
Besides paying a little extra each month and adding raises or bonuses to your repayments, you could potentially pay a large lump sum here and there. For example, if you put the money you make back on your tax return towards your home loan, all of your bond repayments from there on out are a little more effective, because less of the repayment will be going towards interest charges. This strategy works best within the first 10 years of paying off the home loan, as this is when the repayments are largely covering the interest.
Rent out a portion of your property
If you have a potential flatlet on your property – or one that can be converted without too much expense – or you have room to spare, consider renting out this space to tenants. You can then deposit the generated income straight towards bond repayments.
Expert advice when you need it
If you’re looking to purchase a home, chat with our friendly and knowledgeable team about your options. As one of the world’s leading real estate agencies, we can help you find the property of your dreams and assist with expert advice on how to best manage your home loan options.
