You have probably seen a lot of advertisements on Facebook and Internet trying to teach you how to pay off your mortgage in 5 years, which are either a scam or sales pitch, there are only two ways to pay off your home loan faster, reduce the interest or make more repayments. If you could combine these two, it will have double effect.
During current Covid-19 circumstances, most of banks, especially large banks have all announced their loan assistance package. If you wish to pay off your home loan faster, then follow these steps
1. Review your loan interest. Generally the interest of P+I loan is better than IO loan, home loan interest is better than investment property loan and fixed loan rate is better than variable rate. Keep your home loan P+I, and investment loan IO. Choose variable rate for your home loan as it is flexible for extra payments and loan balance offset. For investment property loan, if you don’t plan to sell property in the near future, fix the rate for 1 to 2 years, don’t fix it too long. Negotiate the interest rate with your bank, current lowest fix rate is around 2.2% and variable is about 2.7%. Consider refinance if your current bank cannot match and your income is stable.
2. Defer your loan repayments. Defer your investment property loans, not your home loan if your income has not dropped 25%, and change your home loan repayment frequency to every fortnightly instead of monthly. Most of banks can defer your loan repayment for 3 to 6 months. If your investment property is still rented, straight away set up a direct transfer of the same amount of your normal repayment into your home loan account every month during the period of deferring. If you do not, the chances are the money you saved will be “evaporated”. Remember you don’t miss the money you don’t get.
If you do these, and also review your spending based on our last post, you will find your home loan is reduced significantly after the current crisis, and you have really turned a crisis into an opportunity.