There are also other ways that you can make the most out of your home loan when you have one.

To be able to save money when you have a loan, quite simply, you need to be able to pay it off faster. The faster you pay it off, the less interest you pay and the more money you save.

Here are my nine top tips for paying off your home loan faster so you can reach your goals sooner.

1. Be willing to change

Circumstances can change throughout the life of your home loan. Interest rates can change, job circumstances can change, life happens. And these can both work for you or against you.

For example, when we bought our second property we had a specific amount of money that we wanted to repay. However, we had bills lining up and we were pushing ourselves to meet those repayments.

Instead of giving up on our goal of paying our property off faster, we decided that our monthly amount was too high and too overwhelming to manage. We had a moment of ‘I will be able to repay this amount some weeks, but I won’t be able to keep this up regularly or for very long’ moment.

So, rather than giving up completely, I reduced the amount we were repaying to an amount I knew we could meet every month more comfortably. It meant having to go back and change our timeline for when we wanted to pay it off, but we were ok with that, as it only meant adding two years to our home loan; which was still well and truly under 30 years and still helped us to save hundreds of thousands of dollars on our home loan.

Circumstances might change. When these changes occur you also need to change what you are doing to stay in control of your financial goals.

If interest rates fall—great! Don’t lower your repayments, keep them high and you will pay your home loan off sooner. If interest rates rise, re-calculate how much you will need to repay to stay on track with your goals. If you can’t increase your repayments then you will need to increase the length of your home loan (e.g., instead of five or ten years you may need to aim for seven or twelve years).

If your income is lower (e.g., you lose one wage as we did for a short amount of time when our second child arrived), you may need to adjust the length of time you intend to pay your home loan off for. However, if your wage increases—great! Increase your repayments so you’ll end up ahead of schedule.

If you must do something differently to continue with your original plan, then do that; don’t give up. If you have to add another year or two to your 5 or 10 year plan, that’s ok; six, seven or twelve years is still a great place to aim for and can still save you hundreds of thousands of dollars.

If at this stage you now have a home loan, it’s a great idea to keep track of your home loan every week, fortnight or month. Schedule in time every three months on top of this to re-evaluate your home loan, to see if you need to make any changes to your goals.

Whatever life throws at you, always check-in on your home loan repayments and adjust your goals or your repayments to suit your situation.

Maybe you need to increase the length of your home loan, maybe you need to make higher repayments.

Only you know your situation, and you need to work towards changing when life changes.

Managing your home loan will help you manage your goals and help you stay on track to succeed in your goal of paying your home loan off in your set time.

2. Always Know What Your Interest Rate Is

During the life of your loan you should always know how much your interest rate is. If you don’t, why not? This will help you stay in control.

If interest rates rise, you will need to increase your repayments to pay your home loan off in the time planned.

And if interest rates decrease, you can pay your home loan off even faster if you keep your repayments the same.

3. Open other accounts (not credit cards), including an offset account, but only if it is beneficial

Many lenders (particularly banks) will offer you other accounts that you can open at the same time you take out your home loan. This can be useful. For example, if you have an everyday account with your lender, you can easily transfer money to your home loan account as you please (and it happens immediately). If you move repayments from a different bank into your home loan account, the money may not appear for a number of business days. This could lead to you falling behind on your repayments even when you pay on time. So having your accounts sit together where you can move money immediately can help.

On the plus side, if this account happens to be an offset account, this works even more in your favour. Any money sitting in your offset account works to pay off the interest as if it was sitting in your home loan account. Plus, if you want your home to become an investment property in the future, you can take out this money as you please.

Now you might be wondering, why can’t it just sit in my home loan account? The thing is, in Australia, and I don’t know what it’s like in other countries, if you’ve made repayments into your home loan account and you have basically paid your home loan off, by the time you want to move out you can’t actually take that money out because it’s in your home loan account. But if you put your extra repayments into an offset account, you can take that money out.

It’s just a rule in Australia where you can’t take your money if it’s your home loan account but you can take it if it’s in the offset account.

So when you’re making repayments on your home loan and you’re paying more than the bank expects you to pay, put that money into an offset account. Keep it there and you will always be able to use it later if you need to or want to. For example, imagine you’re paying your home loan off in 5 years, put your minimum repayments that the bank expects you to pay into your home loan account. All of the rest of the additional repayments you’ll be making go instead into your offset account, not into your home loan account. Make sure they go into your offset account. That way you can use your money later.

If you decide to rent out your property, that money you have sitting in the offset account will be available to buy another property or do something else with. It won’t be stuck in your home loan account. You just can’t take that money out of your home loan, but you can if your money sits in an offset account.

Wwwhhhhaaattt!

These are the tax rules in Australia. If you are buying property in another country, you will need to check your country’s tax laws in whichever country you live or buy property in.

You still need to make your repayments to your home loan account (this is really important—keep making your repayments, but only the minimum amount), and then pay the rest into your offset account to help you keep saving more money overall.

Having an offset account could work out to save you thousands of dollars over the full length of your loan and help you to buy your next property sooner. It is well worth considering; but it does come with fees, so weigh up all your options, maybe the extra fees are not worth it.

4. Whenever you have the money, make repayments

In general, paying weekly will save you the most money.

The interest to be paid on your home loan is calculated daily, so if you pay weekly your interest rate will be charged on how much money you have left to pay off every week. If you pay fortnightly, the amount you pay interest on is higher for that extra week you are not repaying it.

By making weekly repayments (instead of fortnightly or monthly repayments) you will be able to pay your home loan off faster.

However, this does come with a warning, if you don’t get paid weekly, do not split your loan repayments up into weekly portions just so you can pay weekly; pay your mortgage off when you get paid. For example, if you get paid fortnightly, pay your home loan off fortnightly. If you get paid monthly, pay your home loan off monthly. Don’t have money sitting in your everyday account. Don’t wait to pay it off another week, pay it off straight away when you have the money, otherwise you will be charged at a higher rate on your home loan for an additional week when you could have already lowered it the week before.

Whenever you get paid, make repayments.

5. Make extra repayments regularly

By now you should have worked out your ideal maximum home loan amount and the repayments that go with it. Stick with this.

Always pay more off your home loan than the minimum expected of you by your lender.

If you choose to make only the minimum loan repayments expected by your lender, you will be paying your home loan off over the maximum term (i.e., 30 years). At the end of your home loan you may end up paying more than double what you had paid for the property in the first place.

When you plan to pay it off faster, do so.

Keep up the repayments in line with what you planned based on the length of time you want to pay it off in and you will pay it off in that set time.

6. Make lump sum repayments when you can

Whenever you can add to your home loan repayments, do so. You may come across extra money when you receive a work bonus (we’ve never received a work bonus; but you never know, some people do), a tax return (get your tax return in early to benefit the most from this), a rebate, or overtime payments. It doesn’t matter, but by choosing to put this extra money towards your home loan through lump sum repayments you will be able to pay your home loan off faster and you will pay less interest overall.

7. Make Sacrifices

If you want to pay your loan off sooner, a little sacrifice, particularly in the early years, will go a long way.

Look at your expenses. What are you spending money on that is not necessary? Do you buy your lunch? Do you often go out for dinner? Do you have pay TV? Do you buy coffee regularly? Do you buy lottery tickets or scratchies that you could forego? Can you reduce your phone bill? Do you buy something every time you shop?

These are just some of life’s little luxury’s that are only small expenses, but they can add up to a lot by the end of the year.

Small spending every now and again won’t break the budget, but small regular spending can (it accumulates, and it’s the cumulation that makes the difference).

If you make small frequent purchases, consider this: that take-out lunch you buy every day could knock off over a year on your home loan, and save you thousands in interest repayments.

If you make small frequent purchases, what you are effectively doing is adding that to your home loan every day.

Is it worth it?

Can you forgo some of life’s little luxuries and make sacrifices in the short-term for long-term gain?

8. Avoid Financing Toys or Other Unnecessary Items

We now know the interest rate and the time taken to pay off a home loan will determine how much it costs you to borrow money. The less time you take in paying off your home loan, the more money you can save.

However, if we were to increase the amount of money borrowed to finance a toy, whether it be through a current loan or a new loan, the increased amount of debt you have committed to, will cost far more money than the amount you borrowed.

It will prevent you from getting ahead on your current loan.

Let’s take a look at an example. Say I love fishing and I decided to buy a boat for $50,000. I take out a loan from a boat company with an interest rate of 15% (interest rates on personal items tend to be higher than interest rates on home loans) and I commit to paying $250 a week towards my boat. After 6 years I would have paid my boat off and with it paid over $24,000 in interest. The True Cost of this boat at this stage is $74,000, plus fees.

However, before I can start to use my boat to go fishing, I need to buy a trailer, pay for registration and insurance for both my boat and trailer, and fit a towbar to my car. This costs me a further $10,000.

My $50,000 boat now costs me $84,000.

Now I can make good use of my boat and go fishing as I please. To do so, I will need to pay for general ongoing costs such as fuel, servicing, and repairs. This takes further money away from my budget and costs me an additional $5,000+ per year (note, I have been conservative here). Therefore, the amount of money I have now used to buy and run my boat (or how much my boat has now cost me) is $89,000+.

Then there’s insurance and all the additional things you must buy for your boat (like lifejackets, flares, oars, safety equipment), could add an additional $2,000+.

This $50,000 boat is now more than $91,000. The opportunity cost of the $91,000 used to buy and run my boat, is money that could have been used to make extra repayments on your home loan. If I used the $91,000 towards my home loan, I would have reduced my principal and paid more off my interest (approximately $5,000 in interest could have been saved in one year depending on the home loan). Therefore, the $91,000 used to buy and run my boat has cost me a further $5,000 in interest repayments on my home loan I now need to make on my home loan.

A better reflection of the costs to buy my boat (rather than make extra repayments to my home loan) has cost me over $96,000.

Now, I know I have generalised the 6 year boat loan into 1 year, but you can see what I’m getting at!

In summary, to finance a toy you may end up paying for:

• the initial cost of the toy; plus
• interest on the toy; plus
• fees; plus
• additional costs to enable you to enjoy the toy (e.g., tow bar, trailer, life jackets); plus
• ongoing costs such as
  • insurance;
  • maintenance;
  • servicing;
  • registration;
  • repairs;
  • running costs (e.g., fuel); plus
• the additional interest you end up paying on your mortgage (because you have taken the money from there and put it into your toy).

It all adds up.

If you buy a boat outright and if your life revolves around boating, then this is a different story. Instead, you may opt to pay your home loan off over a longer period of time. You may want to pay it off over 12 to 15 years instead of 5 to 10 years; and you would still be winning in comparison to a 30 year home loan.

Just be conscious of what you are spending your money on and how it impacts your home loan.

If you cannot buy your boat outright then consider paying off your home loan first (do it fast) so you could buy an even nicer boat later.

For a shorter pain (holding off on the boat), you can pay your home loan off faster and still have your boat when you’re done with your home loan.

I highly recommend, avoid financing toys (don’t take out a loan for a toy). This will allow you to concentrate on paying off your home loan faster. If you can’t buy it outright, then wait until you can pay your home loan off. The quicker you pay off your home loan, the faster you will be able to spend that money later and you’ll be able to buy your dream boat outright sooner.

The same principle also applies to taking out personal loans for cars, holidays, a wedding or taking out a personal loan if you can help it. The interest on personal loans is high; usually more than 15% and sometimes even over 25%.

Some people justify taking out personal loans so they can get a good credit rating. I can tell you, we have never taken out a personal loan. When we bought our first and second property, we also didn’t have a credit card. We only ended up getting one because we had to when we wanted to hire a car. It was mandatory, we had to have a credit card and we only ever used it for that purpose. But we’ve never had a personal loan and we don’t really have a credit card, and our credit rating is in excellent health without these unnecessary loans.

Personal loans will drain away any money that could be going towards your home loan (or for a deposit on your first home).

Avoid personal loans if you can.

9. Avoid dipping into your home loan account

Try not to dip back into your home loan if you can absolutely help it—once you start falling behind on your repayments it becomes very difficult to catch up again.

Not dipping into your home loan will help you to stay on track to paying your home loan off in the amount of time you had planned.

Many accounts these days have re-draw options on the loan account which is great; but this can easily get out of hand. When you take out a home loan, your lender may advise you that you can put all of your income into your home loan account and re-draw money when you need to—this is a piece of advice we didn’t take from our lender!

This may seem like a good idea as it can save you time and the hassle of having to keep on top of when your income comes in and then moving it to your home loan account.

But, it becomes very hard to keep track of your expenses if you do this and you will probably end up taking out more than you intend to. In particular, when there are multiple bills coming in (such as car registration and insurance, school or day-care fees, sports or extra-curricular activity fees, utility bills), your re-draw habits can get out of hand. You may lose sight of your re-draw habits and your initial goals of paying your home loan off faster.

If you want to pay your home loan off faster, it is so important to be mindful of what you re-draw.

If you really want to put all of your salary into your home loan account, decide how much you need to cover expenses until the next pay date and redraw that amount only (then avoid redrawing again in that period). And make sure you don’t take out more than what you had planned to repay, otherwise you may not reach the goals you intended.

It can be very easy to get into the habit of taking extra cash out regularly, losing track of your re-draw, and failing to manage your home loan repayments in line with your original plan. So do be careful of this.

How to avoid dipping into your home loan account

To avoid frequently dipping into your loan account I recommend you:

• be mindful of your re-draw habits (keep track of them); and
• set limits on your re-draw.

If you already have a home loan and have been using re-draw regularly, calculate how much you have been taking out and the times you have re-drawn most frequently (it may be a particular month in the year when bills are high). This will help you determine your spending habits. Set a budget and calculate whether you are taking out over and above what you had planned or intended to. If you have to, re-evaluate your repayment amount and the timeline for which you want to pay your home loan off so you re-draw less frequently.

Our income went into a separate account to our home loan. When we got paid we would keep enough money aside to cover expenses until the next pay day, and then we put the rest into our home loan and offset accounts. This worked out to be on average about $1,200 per week.

On our second home loan our life circumstances were different. I came back to this book and created a plan once we got our home loan.

Initially we were working hard to pay this off. We soon realised that we were pushing ourselves too hard. Because we had already gone through five years of tight budgets, we wanted to allow ourselves to have more spending money for the kids to take part in extra-curricular activities and for holidays, our plan was more relaxed than our first purchase. And that’s completely ok.

On our ‘how comfortable are you in making your repayments’, we aimed for ‘I can repay this amount comfortably’ instead of ‘I will be pushing myself to repay this amount, but I’ll be able to manage’. This meant we would take longer to pay our home loan off.

I then started putting our intended repayment amounts into our offset account (minus the minimum repayment that went into our home loan account). We then had a set amount that we paid every month. When interest rates rose we increased this. And everything else we kept as spending money. Money we could spend on bills, holidays, kids activities and general spending We then very rarely (if ever) took money out of our offset account, and if we did, we always found a way to put it back quickly (if we had a lot of bills one month, there would be another month the bills would be slightly less and we could put the money back).

At the end of the year we could use leftover money for a holiday. And since we were now house swapping, this meant we didn’t have to spend money on accommodation, and instead had more for keeping ourselves entertained on holidays.

Remember, the more you pay off your home loan, the faster you will pay it off and the less money you pay on interest. The less you dip back into your home loan, the faster you will repay your home loan and the faster you reap the rewards.