Tips for Paying a Home Loan Off Early

Overview

Paying off a home loan can be challenging. It’s unfortunate that many borrowers spend years paying their bond without fully considering a number of options available for paying off their home loans early. There are a number of options available for shortening one’s repayment period. 

Increase your instalment payments

By adding more to your monthly instalment, you effectively reduce the repayment period.  It’s important however, that when you do pay extra, you make sure that the extra is applied to the principal balance of the loan. Also ensure that you read the terms of your contact thoroughly, to make sure you don’t have to pay prepayment penalties. With this option, you’re in control.

Refinancing

By refinancing, you are replacing an existing debt obligation with another debt obligation under different terms. This option allows one to take advantage of a better interest rate. Make sure that you compare the savings in interest expense with the fees associated with the refinancing process.

Pay bi–weekly instead of monthly

By paying twice a month instead of once, you can reduce up to six years on a 30 year home loan repayment period. Check if your bank will set up this type of payment plan for you. Some banks do it for free, while others charge a fee.

Consider Lump Sum payments

Make lump sum payments towards your bond payment whenever you can. That year-end bonus you’ve earned can be very useful here. Pay it towards your bond and the loan can be paid off significantly earlier.

Shorten the Loan Term to 15 years

Options are available for shortening the loan term to 15 years. This will mean that the monthly instalment is much higher, but it means you will be debt-free much sooner.