In these situations, it might make sense to pay off your mortgage early:
High Rates of Interest: If you pay off your loan early, you’ll pay less interest throughout the life of the loan because the rates are expected to be 5% to 6% in 2025.
Extra Money Available: You can use bonuses, tax refunds, or extra income to make one-time or regular extra contributions.
Early Loan Stage: Paying off a loan early, in the first 5 to 10 years of a 20- to 30-year loan, saves the most money on interest because most early payments go towards interest.
No Fees for Paying Early: Look at your loan agreement because fixed-rate loans may charge costs (like 1–2% of the remaining balance) for paying off the loan early.
Is it good to pay off your home loan early?
There are a number of benefits to prepaying:
Interest Savings: If you take out a $400,000 loan at 5.5% for 25 years, paying an extra $150 a month could save you almost $55,000 in interest and shorten the loan term by 4 years.
Faster Equity Build: Lowers your loan balance, which raises your home equity and may help you avoid Lenders Mortgage Insurance (LMI) on future loans.
Less financial stress: It lowers monthly payments, which gives you more freedom to invest or spend money on other things.
But think about these things:
Other Types of Investments: Investing extra money might be more profitable than paying off your debt early if you can get better returns (like 7% from stocks).
Emergency Reserves: Keep a financial cushion (enough to cover 3–6 months’ worth of spending) to avoid problems with cash flow.
Restrictions on loans: Fixed-rate loans may not let you make extra payments or impose fees, but variable-rate loans are more flexible.
How to Prepay Wisely:
Look over the terms of the loan: Get in touch with your lender (like ANZ or Westpac) to find out about prepayment options and any fees.
Use the home loan calculator on Srifinance.com.au to figure out how much you could save.
Make extra payments on a regular basis. Even $100 a month can help you pay off your debt faster.
Get assist from a Professional: Sri Finance can assist you come up with a payment plan that works for your budget.
In conclusion
When interest rates are high, you have extra money, and there are no fees, paying off your home loan early in Australia can be quite helpful. Before you make a decision, think about your financial goals and how much cash you need. Get in touch with Sri Finance for expert help in making the most of your mortgage plan.
