Paying off a home loan in 5 years is the dream, right? The reality is, it’s a very challenging goal. Having such short or tight time constraints could be very strenuous, but it is possible given the right circumstances. *
Here are our top tips on how to pay off your home loan in 5 years:
- Borrow a realistic amount to fit your goal - Your choice on properties might be limited as the amount you can borrow will be less if you wish to reach that 5-year goal. With the median sale price for a house in Newcastle landing at approximately $1.2 million, you need to consider where you buy and how much your property will set you back.
- Save a decent deposit - Having a sizeable deposit will lessen the amount you will need to borrow and take a lot of stress off. Remember, just because you have a larger deposit doesn’t mean you should borrow more.
- Increase the frequency and amount of your repayments - Make sure your repayments are also set to automatically come out at an amount that fits your monthly budget, but also your set timeline to pay down the loan. Try and increase repayments and add lump sums (like tax returns and inheritances) when possible as these could drastically decrease the cost and life-span of your home loan.
- Purchase an investment property - You might consider renting out your new property, so you can ultimately flip it for a better return (dependent on how the housing market performs). Once your property is paid down you have the option of moving in once your tenancy agreement lapses, or selling the property and using the profits to buy your next place.
Why should I try and pay my loan off faster?
Paying your loan off faster means your loan could cost you less in the long run, as you’ll have to pay off less interest.
What are some other tips to pay off your home loan quickly?
- Increase your repayments every chance you get - If you can repay a little more one month, jump at the opportunity, it will save you on interest in the long run. So, next time you come into a bit of cash, whether it’s a gift from grandma or that momentous tax rebate, put it towards repayments on your home loan to make your money worth more.
- Take advantage of an offset account - This means the money in your offset account is accessible if required, but it will also support you in minimising the interest on your loan.
- Check for benefits - If you are a first home buyer be aware of any support your state offers. For example, the NSW Government offers a comprehensive package to improve housing affordability, which includes potential stamp duty relief.
Repaying your mortgage in 5 years is ambitious, so it is important to be realistic with your finances. If you want to take a vacation, have a big Christmas or you just haven’t considered unexpected costs like car repairs, you could be caught out. If the life of your home loan surpasses the 5 year period, to 8 or even 10 years, on average this still isn’t considered a long time to be repaying a home loan. When you take out a home loan, it’s good to try and pay off as much as you can as quickly as you can because this will save you on interest, however it’s also important to not box yourself into a rigid time frame or financial distress. When you do take out your home loan, be smart with your money and consider how much you can really afford to borrow if you want to pay off your loan in a shorter time. Following a budget and staying on top of your repayments will ease stress and give you a greater chance of paying your mortgage off quickly.
* General advice on this website has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, consider its appropriateness. Consider the relevant disclosure documents, which include Greater Bank's Terms and Conditions for Deposit and Credit Accounts for some products, Product Disclosure Statements (PDS) for others and Greater Bank's Financial Services Guide (FSG).