The simplest way to quickly pay down your home loan is to allocate as much income as you can to your mortgage. It sounds easy enough but there are other steps you might need to take first:
- make lifestyle changes to reduce your monthly expenses;
- consolidate your other debts (perhaps through refinancing), especially those carrying higher interest rates, such as credit cards, then shifting those payments to your home loan;
- refinance your home loan to a lower interest rate but maintain the loan term and current payment amount.
The time-honoured way to pay down your home loan faster is to repay as much as you can as early as you can while resisting the urge to re-borrow anything through a redraw facility. The reality is that those who successfully pay down their home loan faster make regular repayments that are larger than the minimum repayment obligation set out in the loan contract (as long as this doesn’t attract penalties or fees). Making irregular extra repayments is also an excellent strategy for those with enough income or control over their expenses.
You can achieve excellent interest savings by adopting simple cashflow strategies. You will also accelerate your level of equity – the portion of your home value that you own outright.
After making extra repayments you may be able to re-borrow these funds through a redraw, or take a repayment “holiday” if you have an urgent reason to stop paying for a short period. Redraws are a great idea but you need to be careful – they can end up costing you a lot in interest payments from the day you take the money out until the day the loan is fully repaid.