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If you’re sitting on a 30-year loan, being mortgage-free can seem like a long way off. But small changes to how you live and structure your home loan could have an impact on the size of your loan and how long it could take you to pay it off.

The interest you pay each month is calculated based on how much you owe – your principal home loan balance. As your principal goes down, you pay less interest, and more of your repayments go towards reducing your principal. Here are eight ways that could make that happen sooner.

1. Review your situation

Many people set up their home loan and then don’t review it for years. But factors affecting your position can change – check to see that your loan is structured to best suit your current circumstances. Your situation can change quickly, and it’s important to review your position regularly to see if you could be paying off your loan faster by increasing your repayments or making a lump sum payment, for example.

2. Consider splitting your home loan

If you think you’ll make extra or lump sum payments during your loan term, you could consider putting some of your loan on a floating rate. That way, you can make extra payments without incurring early repayment charges. A floating home loan could also be in the form of a revolving credit facility, which acts a bit like a big overdraft. If you put all your earnings into your revolving credit and limit your spending, you may be able to reduce what you need to pay on interest each month.

Floating and revolving home loans tend to have higher interest rates so it’s important to consider how much and when you’re likely to add those extra payments.

3. Think shorter-term

Most of us set the term of our home loan for 30 years. But one of the easiest and most effective ways to pay it off faster is to calculate your home loan repayments over a shorter timeframe. Instead of 30, can you afford to repay your home loan in 25 years, or 20? That way, you could be home loan free sooner, and you will pay less interest in the long-run.

4. Swap to weekly or fortnightly payments

Say you change to paying $1500 fortnightly instead of $3000 monthly. That means you’re knocking $1500 off your home loan two weeks earlier— and with that reduced loan principal, you’ll save on interest. It’s the small amounts saved here and there that add up over a loan’s lifetime.

And paying weekly or fortnightly can also create additional payments over the course of a year so you’ll end up paying a bit extra and may not even notice. For example, over a year you could make:

  • 12x monthly payments of $3000, which would be $36,000 paid to your loan.

  • or 26x fortnightly payments of $1500, which would be $39,000 paid to your loan.

5. Keep repayments the same

It can be tempting to lower your loan repayments if interest rates drop. Instead, if you can, keep your repayments the same so that you could put more towards paying off your loan principal and reducing your interest costs.

6. Pay fees upfront

It’s common, easy and appealing to add extras – such as legal fees – to your loan, so you don’t have to pay for them upfront. However, the interest you’ll pay on those extras adds up over a few years. Instead, see if you can bite the bullet and pay them right away.

7. Cut back on the nice-to-haves to increase repayments

If you own your own home, you might have already cut down on some of the luxuries of life – but is there anywhere else your money could be better spent to pay off your loan faster? Remember, the less you owe, the less interest you pay, which means more of your repayments can go towards paying off your loan principal. Even putting a hundred dollars extra a month onto your home loan could mean significant interest savings in the long run.

8. Pay a lump sum

If you’ve come into a bit of money — whether from a promotion, inheritance, sale or tax refund – you could consider putting it towards your home loan. A lump sum payment is more likely to go towards repaying your principal loan balance. That’s because your regular payments cover the interest – it’s already paid, so any extra you put in goes straight into paying down the debt. There’s one thing to remember though – depending on the structure of your home loan, there may be early repayment charges, so it pays to check.

What next?

Even if you’ve already taken out a loan for 30 years, with careful planning, you can pay it off faster and pay less interest, reducing the overall cost of your loan. If you want to talk about an existing home loan or you’re looking to get onto the property ladder, give The Co-operative Bank a call or visit your local branch – our home loan specialists are always here to help.

THE COOPERATIVE BANK DISCLAIMER: The views expressed in this article are for general information purposes only, do not take into account your individual circumstances and are not financial advice.

Jon Armour

Jon is Chief Product Officer at The Co-operative Bank – which is committed to helping New Zealanders bank better. Jon’s role is to ensure The Co-operative Bank’s customers have the best banking products available. Read more »