How to pay off your mortgage faster

Congrats, you’ve bought a home! Being a home owner is a dream of many New Zealanders. Taking out a home loan is the first step to achieving that dream. The only thing is, until you pay back what you borrowed, your home ownership remains in partnership with your lender.

It’s no secret that we all find it easier to spend than save! However, saving in the short term can drastically improve your financial situation in the longer term and can help you become debt free faster.

Every home loan is made up of two components - principal and interest. The principal is the amount you borrowed and must pay back, while the interest is the amount the lender charges for lending you the money. We know how much you want to get rid of that mortgage! So read on for our tips on how you can pay it off much faster.

1. Make your first repayment on settlement date

Your first loan repayment will generally fall due one month after settlement. Making your first repayment on your settlement date will help reduce the principal before the first lot of interest accrues on the amount you have borrowed.

2. Make extra repayments

Got an unexpected bonus from work, or received a tax return? Put that extra cash towards your repayments. The earlier you start making additional repayments off your loan, the greater the benefit in terms of time and money saved.

3. Make repayments more often

If your loan repayments are calculated monthly, try halving your monthly repayment and paying fortnightly. This will mean you will be paying an additional month’s worth off your mortgage every year, reducing the principal faster. 

You can use Loan Market’s loan repayment calculator to find out the difference in your loan repayment amounts.

4. Cut back on your expenses

This one may seem obvious but can’t be missed on the list. Try cutting back on unnecessary expenses and redirect the money towards your home loan instead. Even just a month of reduced morning coffee’s, bought lunch or dinners, or that after-work beer could add up to putting more than $50 extra a week into your loan.

5. Shorten the term of your loan

Reducing the term of your loan will cause your repayments to increase but you’ll pay off your loan a lot faster, reducing your overall interest payments.

For example, switching a $250,000 loan from a 30-year term to a 25-year term could save over $69,000 in interest costs, based on an interest rate of 7% p.a. and monthly repayments.

For more home buying tips check out The Summit Homes Blog.