by Lisa Montgomery, Head of Consumer Advocacy 26/06/2007

The cheapest home loan is usually the one you pay off the fastest. In the process you can save yourself thousands of dollars in interest payments! Below are seven strategies to help you pay off your home loan quickly:

1. MAKE SMALL EXTRA REPAYMENTS

Even a little bit of extra money added on to your regular home loan repayments can wipe years off your home loan and save you a lot of money. For example, borrowers paying an extra $80 a month off a 30-year $200,000 loan with an interest rate of 6.94% can save themselves $52,630 in interest and cut 4 years and 10 months off their loan. More home buyers are starting to wake up to these benefits, with a recent survey by Resi finding that 69% of respondents with mortgages were making extra repayments into their loans.

2. MAKE MORE FREQUENT REPAYMENTS

Simply by paying off your loan weekly or fortnightly instead of monthly you can find yourself well ahead. For instance, if you change from monthly repayments to fortnightly repayments, you will actually be making one additional repayment a year and hardly even noticing it (because there are 26 fortnights in a year compared to 12 months). However for this to be effective it is important that you ask Resi to halve your monthly repayments when coming up with your fortnightly repayments, rather than recalculating the amounts.

3. MAKE ADDITIONAL LUMP SUM REPAYMENTS

If you suddenly come into some extra money, such as through an inheritance, a bonus at work or a good tax return, then the wisest course of action is often to put it towards your mortgage. The resultant savings can be huge.

4. SALARY CREDITING

Salary crediting means having your salary deposited directly into your loan account each month. You can then use a credit card with a good interest free period (such as the Resi credit card) to pay for your regular living expenses and at the end of the month have the card ‘swiped’ (or paid off) against the home loan. Because interest on your home loan is calculated daily, then every day you leave extra money in your home loan account is of direct benefit to your hip pocket.

5. TAKE MAXIMUM ADVANTAGE OF INTEREST RATE CUTS

If interest rates fall, don’t be in a hurry to reduce your regular repayments. Ask Resi to leave them at the previous level and you’ll find that a relatively small cash advantage turns into a windfall in interest savings. In the process you’ll also be putting a buffer in place in case interest rates rise in the future.

6. GET TO KNOW YOUR LOAN

It pays for borrowers to get to know their loans and to make the most of the features and benefits they offer. For example, most Resi variable loans offer salary crediting, a free redraw facility and the flexibility to switch some (or all) of your loan from a variable to a fixed rate, whenever you wish. Sometimes your circumstances can change and particular loan features can become very useful and even save you money.

7. MAKE REPAYING YOUR HOME LOAN A PRIORITY

Interest repayments on an owner-occupied home loan are non tax-deductible, which means it makes good sense to give priority to paying off your home loan quickly instead of directing funds towards paying off investment loans or having them sit in low interest-bearing deposit accounts (where any interest received will also be taxed). Try your best to also resist the temptation to redraw money from your home loan to fund consumer items, holidays, or the like. The bottom line is that the people who are the most successful in paying off their home loans quickly are those who make it a priority.

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