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What Are Pure Principal Payments?
A pure principal payment is an additional payment that directly reduces the outstanding principal balance of your loan (the amount you borrowed) not accrued interests or fees.

Why is it Important to Reduce your Principal Balance?
Interest is calculated on the remaining principal balance, so the faster you can reduce the principal balance, the less interest is accrued which is a big financial incentive to pay off your mortgage as quickly as possible.

7 Tips To Repay Your Mortgage More Quickly

Make More Frequent Payments
A simple strategy that can save you interest from the start is to make smaller, more frequent payments. If you’re currently paying monthly, switch to fortnightly payments but pay half of your monthly amount. Fortnightly mortgage repayments mean you pay 26 times a year, the equivalent of 13 months.

Here’s how it works:

Loan Principal: $600,000
Original Term: 30 years
Interest Rate: 6.5%
Required Monthly Payment: $3,792.41 (x 12 months)
Yearly Payment: $45, 508.92

Fortnightly Payment: $1896.21 (x 26 weeks)
Yearly Payment: $49,301.46

By paying every two weeks rather than every four, you contribute an additional months’ worth of payment to your principal mortgage which can shave off approximately 3.5 years of your loan term and save approximately $106,660 in interest.

Consolidate Your Loans
Paying off other loans? If you’ve got credit card debt and personal loans to pay off, consolidate these into your lower-interest home loan. Why? Because these other loans usually have a much higher interest rate than your home loans. If you’re paying off debt that accrues interest at 18% and move it to your mortgage rate of 6.5% you’re instantly going to save on your annual interest payments. This will free up money that you can then use to attack the principal loan.

Please note, by putting unsecured debt into a secured mortgage you put your home at ros.

Refixing Your Mortgage? Keep Your Payments the Same
If you’re able to refix your mortgage to a lower rate, keep your payments the same. Your budget will stay the same so you won’t see a difference in your lifestyle straight away, but you will when you’re mortgage free because you’ve paid off the principal balance more quickly.

Use Payrises to Increase Payments to Your Home Loan
Finally got the payrise you’ve been wanting? Now is your time to increase your mortgage repayments. Sure, you might make a couple of upgrades to your standard of living, but if you mostly keep your budget the same as it was pre-payrise and put the extra money towards your repayment, you’ll be mortgage free much more quickly.

Take this example:

Loan Principal: $600,000
Original Term: 30 years
Interest Rate: 6.5%
Required Monthly Payment: $3,792.41

By paying an additional $30 a week ($130 a month) you shave 2 years and 9 months off the mortgage, and save $84, 726.68.

Not bad for $30 a week.

Use Bonuses and Extra Cash to Pay a Lump Sum
If you’ve been lucky enough to receive a sum of money, perhaps a bonus, tax refund, inheritance or a gift then use some, or all of it, to make a lump sum payment on your mortgage. Most banks and lenders let you make additional payments, although if you’re on a fixed interest rate you might have to wait until you come off your fixed rate. These lump sum payments are pure principal payments, so you’re immediately reducing your interest, thereby saving you money.

Make a Budget, to Find ‘Spare Cash’
We understand that the cost of living is currently high, and we’re not telling you to make unobtainable cuts, but if you’re not currently keeping track of your money with a budget then we suggest you give it a go and you might find that you can spare a few dollars here and there.

Start by recording where you spend your money to see where you could comfortably cut back, even small things such as forgoing one coffee a week, or saving on delivery fees by clicking and collecting. Every extra dollar that you can put towards paying off your mortgage helps to chip away at that principal payment and interest.

Check Out Flexible Loan Structures (Revolving Credit or Offset)
When choosing your mortgage structure take a look at more flexible loan structures such as revolving credit and offset loans.

A revolving loan lets you pay your salary into your mortgage account, which reduces the balance and the daily interest charged (until you use the money to pay for expenses).

An offset loan uses your savings in designated accounts to reduce the interest payments on your mortgage.
For example if your mortgage is $600,000 and you have an account with $30,000 of savings, then rather than pay interest on the full mortgage you would pay interest on $570,000 ($600,000 minus your savings).

We go into more depth about revolving and offset loans here. What Are Pure Principal Payments?
A pure principal payment is an additional payment that directly reduces the outstanding principal balance of your loan (the amount you borrowed) not accrued interests or fees.

Why is it Important to Reduce your Principal Balance?
Interest is calculated on the remaining principal balance, so the faster you can reduce the principal balance, the less interest is accrued which is a big financial incentive to pay off your mortgage as quickly as possible.

7 Tips To Repay Your Mortgage More Quickly

Make More Frequent Payments
A simple strategy that can save you interest from the start is to make smaller, more frequent payments. If you’re currently paying monthly, switch to fortnightly payments but pay half of your monthly amount. Fortnightly mortgage repayments mean you pay 26 times a year, the equivalent of 13 months.

Here’s how it works:

Loan Principal: $600,000
Original Term: 30 years
Interest Rate: 6.5%
Required Monthly Payment: $3,792.41 (x 12 months)
Yearly Payment: $45, 508.92

Fortnightly Payment: $1896.21 (x 26 weeks)
Yearly Payment: $49,301.46

By paying every two weeks rather than every four, you contribute an additional months’ worth of payment to your principal mortgage which can shave off approximately 3.5 years of your loan term and save approximately $106,660 in interest.

Consolidate Your Loans
Paying off other loans? If you’ve got credit card debt and personal loans to pay off, consolidate these into your lower-interest home loan. Why? Because these other loans usually have a much higher interest rate than your home loans. If you’re paying off debt that accrues interest at 18% and move it to your mortgage rate of 6.5% you’re instantly going to save on your annual interest payments. This will free up money that you can then use to attack the principal loan.

Please note, by putting unsecured debt into a secured mortgage you put your home at ros.

Refixing Your Mortgage? Keep Your Payments the Same
If you’re able to refix your mortgage to a lower rate, keep your payments the same. Your budget will stay the same so you won’t see a difference in your lifestyle straight away, but you will when you’re mortgage free because you’ve paid off the principal balance more quickly.

Use Payrises to Increase Payments to Your Home Loan
Finally got the payrise you’ve been wanting? Now is your time to increase your mortgage repayments. Sure, you might make a couple of upgrades to your standard of living, but if you mostly keep your budget the same as it was pre-payrise and put the extra money towards your repayment, you’ll be mortgage free much more quickly.

Take this example:

Loan Principal: $600,000
Original Term: 30 years
Interest Rate: 6.5%
Required Monthly Payment: $3,792.41

By paying an additional $30 a week ($130 a month) you shave 2 years and 9 months off the mortgage, and save $84, 726.68.

Not bad for $30 a week.

Use Bonuses and Extra Cash to Pay a Lump Sum
If you’ve been lucky enough to receive a sum of money, perhaps a bonus, tax refund, inheritance or a gift then use some, or all of it, to make a lump sum payment on your mortgage. Most banks and lenders let you make additional payments, although if you’re on a fixed interest rate you might have to wait until you come off your fixed rate. These lump sum payments are pure principal payments, so you’re immediately reducing your interest, thereby saving you money.

Make a Budget, to Find ‘Spare Cash’
We understand that the cost of living is currently high, and we’re not telling you to make unobtainable cuts, but if you’re not currently keeping track of your money with a budget then we suggest you give it a go and you might find that you can spare a few dollars here and there.

Start by recording where you spend your money to see where you could comfortably cut back, even small things such as forgoing one coffee a week, or saving on delivery fees by clicking and collecting. Every extra dollar that you can put towards paying off your mortgage helps to chip away at that principal payment and interest.

Check Out Flexible Loan Structures (Revolving Credit or Offset)
When choosing your mortgage structure take a look at more flexible loan structures such as revolving credit and offset loans.

A revolving loan lets you pay your salary into your mortgage account, which reduces the balance and the daily interest charged (until you use the money to pay for expenses).

An offset loan uses your savings in designated accounts to reduce the interest payments on your mortgage.
For example if your mortgage is $600,000 and you have an account with $30,000 of savings, then rather than pay interest on the full mortgage you would pay interest on $570,000 ($600,000 minus your savings).

We go into more depth about revolving and offset loans here. Revolving Loans Vs. Offset Loans

At The Finance Hub, we’re here to help you build the tomorrow you want, starting today, so if that is being mortgage free as soon as possible, chat to us about finding the right lender and loan for you. Call us on 0800 346 482