Want to pay your home loan off faster? Don’t have time to think about it?

Life is busy and who has time to sweat about what’s happening on your home loan? Sometimes we get so caught up and busy in life that we forget to look after ourselves and to look after our own personal finances. Because well, while life is busy; your home loan is important too!

The good news is that you can pay your home loan off faster, without thinking too hard about it!

There are 3 things you can do to use one simple rule and pay your home loan off faster. There are things that even you can do if you have a busy life. There are simple shortcuts you can use, and these start with one simple rule.

The 50% rule

The 50% rule goes like this: pay more off your principal than the interest part of your home loan; right from the start.

• The principal = the home loan part of your home loan—the amount you borrowed; and
• The interest = the fee you pay to your lender for borrowing that money—the money that your lender takes every month (or regularly).

If your repayments are $1000 a week, the 50% rule says that you need to have more than $500 going towards the principal part of your home loan (more than 50%, e.g., $500.01) and that less than $500 should be going towards the interest part of your home loan (e,g,, $499.99). The more of your repayments going towards the principal part of your home loan, the faster your debt will be gone.

When more than 50% of your repayment goes towards paying off the principal part of your home loan, you will pay your home loan off so much faster and you could save hundreds of thousands of dollars on your home loan. Paying just over double your interest as a home loan repayment may mean you need to earn more income somewhere or saving more money, if you can do this, by all means go ahead, but if not, that’s absolutely ok, you can still get ahead by using ‘The 2 minute method’ and build up to the 50% rule. Work out a repayment that works out for you and your situation. You may even be at the point where you can pay more than 50%, that’s when it’s time use the ‘More than 15 minute method’ to work out an even faster repayment plan. To pay your home loan off super fast, aim to pay between 60% and 80% of your principal each month (with between 20% and 40% going towards interest each month).

How can I use the 50% rule?

And here are 3 ways you can use the 50% rule based on how much time you have to think about it:

• The 2 minute method

If you’re really strapped for time, this method is very fast to implement and will get some good savings. Here’s how to implement this strategy. When you have more time, more on to the next method.

This is for someone who just wants to have the additional savings, but who doesn’t have the time or the worry to maximise the 50% rule just yet, but is building up towards this. This is for someone who only wants to spend 2 minutes on this. There’s not much thinking involved, it’s more about implementation.

Here’s how to use ‘The 2 minute method’. If you already have a home loan, think about the bare minimum you have to repay, the amount your lender tells you to repay. If you don’t have a home loan, use a home loan calculator to work out how much you would need to repay on your ideal home loan as a minimum on a 30 year loan.

Thinking about that amount, the easiest way to introduce this is to simply add an additional amount of money to your minimum repayments. For example, say you have to pay at minimum $2,000 per month to your home loan; now, instead of repaying $2,000 when you make a repayment, repay an extra $50, $100, $200 or more each month into your home loan (and that becomes your new minimum repayment. Repay more than you need to, and do this every time you make a repayment. For example, instead of $2,000 per month, your repayments would now be $2,050 or $2,100 or $2200 or more. And this would be regular repayments. Put that extra amount into an offset account so you can use it later. For more information on an offset account, find that here in our nine top tips for saving money on your home loan.

You don’t have to think about this too much, just start adding in more to your repayments than you normally would. And start adding this immediately every single month.

This method could save you 1 year on your home loan or it could save you 5 years. The more you repay, the faster you pay it off, and the more money you save.

• The 10 minute method

This method requires just a little thought to implement and will get you incredible savings on your home loan; incredible. Even with just a little bit of time and thought. When you have more time, move onto the last method.

If you have a home loan, look at how much you paid in interest in the last month that had 31 days. January, March, May, July, August, October and December all have 31 days so pick any of these months. Now double that amount. That amount is now your new repayment amount! If you already pay more than this, jump to the last method.

If you don’t have a home loan, think about your ideal home loan amount and work out your interest on the first month of your repayments. Now double it! That amount is now your new repayment amount!

• The more than 15 minutes method

This is the method we used to pay our first home loan off in 5 years. It does take a little planning and we have free calculators that will help you work this out quickly. Use our calculators to work out the Principal-to-Interest split and aim for between 60% and 80% of the repayments going towards the principal part of your home loan. It is the option that will save you the most amount of money and will see you paying your home loan off even faster still. To find out more about the Principal-to-Interest split, read ‘Pay more off your principal than interest‘.

Summary

The 50% rule goes like this, pay more off your principal than the interest part of your home loan (remember that the principal is the home loan part and the interest is the fee you pay to the lender for borrowing that money). If your repayments are $1000 a week, make sure at least $500 is going towards the principal part of your home loan. The more you pay off, the faster your debt will be gone. You can build up to this using the ‘2 minute method’, you can get there with the ’10 minute method’ and you can exceed this and really supercharge your home loan repayments using the ‘more than 15 minute method’.