PAY YOUR LOAN FASTER

It might sound like mission impossible but repaying your mortgage within 10 years could be easier than you think

REPAYING a home loan within 10 years might sound impossible, but it could be easier than you think.

Record low interest rates and reduced spending options for the eight million of us who once headed overseas every year have created rare opportunities for Australians to seriously smash down their mortgages.

Research group Canstar has crunched the numbers and found an average $400,000 home loan can be reduced from 30 to 10 years with extra monthly repayments of about $2200, and repaid in just five years if you’ve got a lazy $5500 spare each month.

“I reckon 10 years is doable for a lot of people,” says Canstar’s group executive financial services, Steve Mickenbecker.

That $2200 monthly extra repayment equates to $507 a week, which is what many households were paying on international holidays before Covid struck. And if you can’t repay your mortgage in five or 10 years, how about 15 or 20?

“Knocking 10 years off a $400,000 loan at the average interest rate will cost you $528 a month,” Mickenbecker says.

When interest rates climb back to typical levels above 5 per cent, “you would be up for that much anyway”, he says.

“That’s what the future’s going to bring, so why not start making that payment now? It will save you a lot of interest off the loan even if you can’t maintain that for the next 20 years.”

Mickenbecker says today’s ultra-low rates make now a “magical time” to repay because each dollar paid wipes a larger chunk off the loan principal. “Rates will go up,” he says.

Loans.com.au’s managing director, Marie Mortimer, says it makes no sense to leave cash sitting in a bank account when it can be working to cut a mortgage.

“Any spare money you have should be put on your mortgage so you can reduce your interest payments and pay your home off sooner,” she says. “If you want access to your cash, then it may be wise to use an offset account or a redraw facility, allowing you to minimise your interest payments and reduce your principal.”

Mortimer says there are plenty of offset calculators available online to help you work out your potential savings.

Kristina Doyle and her wife Annie have used offset accounts and lump sum payments to repay their mortgage quickly.

Doyle, 33, says the real estate and economic climate right now means fast home loan repayment is an excellent idea. “Especially with rates as low as they are, you would be silly not to,” she says. “If you can get as much equity as possible in your home at this point in time, it puts you in a good position for the future.”

The Doyles plan to use the growing equity in their home for further property investment.

Two Red Shoes mortgage broker Rebecca Jarrett-Dalton says paying off a home loan faster won’t happen unless you focus on key steps.

“It isn’t just about paying more than your standard monthly repayments – it is also about the timing of the repayments and being savvy about your banking processes,” Jarrett-Dalton says.

Match your repayments to your pay cycle, Jarrett-Dalton says.

Homeowners Kristina Doyle and wife Annie with son Ted, 16 months, at their home. Picture: Nigel Hallett