Your home loan doesn’t have to take 30 years to pay off. There are several ways you can reduce the time it takes to pay it off – and the amount of interest you pay. We’ve put together five money-saving tips to help you become mortgage-free sooner.

Give me the main points

  • Extra payments add up.
  • Pay fortnightly instead of monthly.
  • Think very hard before reducing your repayments.
  • Use lump sums (such as work bonuses) to get your mortgage down.
  • Consider a 100% offset account.

Be mortgage-free

Do you dream of being mortgage-free? You’re only human. How nice it'd be to save those mortgage payments? Put your salary straight into a savings account and watch it grow, rather than disappear into your home loan. One day.

Even though most home loans have a 30-year term, there's no reason you can't pay it off quicker. Sometimes, though, there are strings attached that could cost you extra.

For instance, if you have a fixed-rate home loan, you can make additional repayments up to $20,000, but after that you may incur economic cost.

Before we get to our top five money-saving tips, let’s briefly recap the differences between variable and fixed rate loans.

Variable vs. fixed rate loans

Both have their pros and cons. If you want to pay off your loan faster, you might opt for a variable rate over fixed. It's more flexible, letting you make unlimited extra repayments at no cost.

Though don’t think if you have a fixed-rate loan now, you’re stuck with it forever. Once the fixed term ends, you can roll it over to variable and make extra repayments (if you wish to).

Which brings us to our list...

1. Make extra repayments

If your home loan allows you to make extra repayments (check with your banker), increase the amount you pay each month. Start small and nudge up as you can afford it.

Of course, only increase your payments if you can afford to. There’s no point putting more money in if you can’t afford to buy your Weetbix.

2. Align repayments with your salary

This is a neat trick. If you get paid fortnightly, change your repayments (minimum or extra) to fortnightly, too. This way, you’ll pay more off your loan each year. Really.

Say your monthly repayments are $2,000. By the end of the year, you’ll have repaid $24,000 (not accounting for interest). If you change this to $1,000 a fortnight, by the end of the year you’ll have repaid $26,000. How? Because there are 12 months in a year—and 26 fortnights. Effectively you squeeze in an extra month each year. Over the life of your loan, this can shave a couple of years off the end.

3. Reduce your payments as a last resort

When variable interest rates fall, some borrowers reduce their repayments. And while a respite may be just what you need, think about keeping your repayments as they are. It'll mean you end up paying more off your loan sooner—and you'll be better off in the long run.

Conversely, if rates keep steady for a while, think about adding an extra $20 dollars on top of your normal repayments. It adds up.

If you have applied to reduce your repayments with an interest only loan structure, Australian Securities and Investments Commission has some useful information for customers using an interest only repayment period as part of their loan term. Check out their MoneySmart guidance for some easy to follow infographics highlighting the pitfalls and benefits of this type of lending structure. You can also find examples of how much you may expect to pay for this type of loan structure.

4. Use lump sums

If you’ve received a lump sum payment—a tax return, work bonus, inheritance or dividend payments—ask yourself if you need to spend it. As tempting as it might be to splash out and big-screen telly it up, diverting these large sums to your loan will help you pay it off quicker.

5. Use a 100% offset account

Using an offset account is a smart way of saving on your home loan. Managed well—and used to your advantage—you can save substantial amounts of interest.

If you have an offset account or are thinking about one, check out Pay less interest on your home loan with 100% offset for some tips.

How to make your NAB home loan work harder

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