Hacks To Pay Off Your Home Loan Faster

Most homeowners feel like they will always be under debt, thanks to 30-year mortgages. Every month you make your loan payment, and there is very little money left for you to spend. If you are able to pay off the entire loan earlier, it will save you money and provide financial stability.

There are many techniques by which you can repay your home loan earlier. Some of these methods don’t even need you to make extra payments. Make use of any one or a combination of the following tactics to pay your home loans faster. Let us take a look. 

Refinance your loan to a shorter-term

If you have a long-term 30-year mortgage, half of your life will be spent repaying your loan. Now, if you get it refinanced to a 15-year term, it will allow you to finish off your loan repayment faster than ever. Most loans with a short term also have a short interest rate. When both the interest rate and the term are short, you will save a lot of money in interest. 

Most people think that if they reduce the loan term, they will have to make double repayments every month. You will have to pay more, but it is lower than double. Before refinancing to a short-term loan, you can calculate what your monthly payment will be. If you are fine with the added payment, then a shorter-term loan will help you pay your loan back faster. 

Refinance your loan to a lower rate

One of the most used and best ways to pay your loan faster is through refinancing your loan when interest rates are low or if your credit score has vastly improved from the time, you first took the loan. You should refinance your home loan only if it helps you repay the loan amount faster.

When the interest rate is lower than before, the amount you repay every month will also decrease. You will save a certain sum of money each month which can be used for extra repayments. You can pay off your loan faster, thanks to extra repayments. 

For any help with refinancing your home loan, you can speak to NG loans specialists for advice.

Consider making repayments more frequently

Most people make just one monthly loan repayment. However, making payments more frequently will let you repay more every year. Imagine if you make repayments bi-weekly. If your monthly payment is $2000, you will make a $1000 payment every other week. It will not affect your budget much because you pay the same amount every month. 

However, there are 52 weeks in one year, and making payments bi-weekly amount to 13 full payments every year instead of just 12. Without arranging for extra money or resources, you can make one extra month’s repayment through bi-weekly payments. It is a really effective method for anyone who wants to repay his mortgage earlier than the decided term. 

Recast your home loan

There is a lot of difference between refinancing and recasting your loan. Refinancing involves a new loan with a new interest rate and term, but in recasting, you have your previous loan. You make a big repayment towards your principal amount, and your loan provider will show a new balance after deducting your payment amount from the principal amount.

Recasting your loan will reduce your loan term, and it is much economical than refinancing. Most banks and loan providers charge a high fee for refinancing, but recasting can be done for a significantly lower amount. However, not all providers allow recasting, so you have to consult your loan provider before. Different lenders charge different fees, and there are limits to how often you can recast your home loan. 

Pay extra towards the principal when you can

Most loan providers allow you to make an extra payment towards the principal amount when you make your monthly repayment. This amount does not go towards the interest and just pays down your principal amount. Even if you pay a small amount of principal every month, it will save you a lot of interest money and allow you to finish off your loan multiple years before it is supposed to. 

A great strategy to pay off the principal is by rounding off your monthly mortgage payment. For example, you have to pay $820 every month. You can pay $900 instead of it, and the extra $80 goes towards the principal payment. Even if the amount is small, but it will accumulate each month faster than you notice. It is a great way to reduce the principal and finish off your loan quicker than expected.

Spend bonuses and extra funds on loan repayment

There will be multiple moments throughout the year where you will have more than your monthly income to spend. People receive bonuses from work, tax returns, gifts from friends or family, sell old stuff, etc., and this extra money can be used to pay off your home loan sooner. 

If you have been promoted at work and got a raise, then you will be able to pay extra money towards the loan every month. Imagine your salary was increased by $200, you can use it fully or partially in your monthly loan repayment. This is extremely effective in paying off your loan faster. 

Use a redraw facility and offset account

If you have made any extra repayments towards your home loan, the redraw facility can be used to access your funds from those payments. Your loan’s interest rate is also reduced through this method, but it can be quite expensive and time-consuming. 

An offset account has the function of a savings account for you and reduces the interest you pay on your home loan. The amount present in this account is deducted from the total principal, and you just pay interest on the leftover amount. You can withdraw funds from your offset account anytime, but the more money in your account, the lesser interest you will be charged on your loan.  

Conclusion

Paying off a long-term home loan comes with a lot of burden, and many personal and financial goals cannot be achieved because of it. Once a person is finished repaying his debt, he feels free. 

We talked about some of the best ways that can help you repay your home loan faster. For any advice or information, contact NG Loans home loan specialists.