Can You Shorten Your Home Loan Term and Save Money?

Are you looking to achieve financial freedom and save money in the long run? If so, consider the possibility of shortening your home loan term. By reducing the duration of your mortgage, you not only expedite your path to owning your home outright, but you can also potentially save a significant amount of money.

This article delves into the advantages of shortening your home loan term, highlighting the potential savings and offering insights into the process. Discover how this strategic move could empower you to achieve your financial goals sooner while maximising your overall financial well-being.

What is a Home Loan Term?

A home loan term, also known as the mortgage term, refers to the specific duration within which you are expected to repay the borrowed amount for your home purchase.

It is essentially the agreed-upon length of time during which you make regular monthly payments to the lender, gradually paying off both the principal and the interest.

The most prevalent home loan terms are typically 30 years and 15 years, although other options may be available depending on the lender and your specific circumstances.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Why Shorten Your Home Loan Term?

Shortening your home loan term can bring several compelling benefits that can positively impact your financial well-being. Here are some expanded reasons why you might consider shortening your home loan term:

Save money on interest

One of the primary advantages of shortening your home loan term is the potential to save a substantial amount of money on interest payments. By opting for a shorter repayment period, you minimise the overall duration during which interest accrues. This translates into significant interest savings over the life of the loan. The earlier you pay off your principal, the less time there is for interest to accumulate, resulting in reduced interest costs.

This can potentially save you thousands or even tens of thousands of dollars, allowing you to retain more of your hard-earned money.

Reach financial goals sooner

Shortening your home loan term can help you achieve your financial goals more quickly. With a shorter loan term, you expedite the process of paying off your mortgage in full. This means you’ll have greater financial freedom and flexibility in the future.

For instance, if you’re saving for retirement, shortening your loan term enables you to allocate more funds towards retirement savings each month. It can accelerate your progress towards financial milestones, empowering you to build wealth and secure your future sooner.

Gain financial flexibility

Choosing a shorter loan term provides you with increased financial flexibility. With a reduced repayment timeline, you’ll have less debt hanging over your head. This means you’ll have more disposable income available for saving, investing, or pursuing other financial goals.

Additionally, shorter loan terms result in higher monthly payments, but once the mortgage is paid off, you’ll have more money at your disposal to allocate towards various endeavours. Whether it’s funding a passion project, travelling, or enjoying hobbies, a shorter loan term can free up your financial resources and enhance your overall quality of life.

Achieve a debt-free status sooner

Shortening your home loan term means you’ll reach a debt-free status at an earlier stage in your life. Being mortgage-free can provide a tremendous sense of financial security and peace of mind. It eliminates a significant monthly expense, freeing up your budget for other essential expenses or long-term savings.

Without the burden of a mortgage hanging over you, you have the opportunity to live with more financial stability and make choices that align with your values and aspirations.

How to shorten my home loan term

If you’re considering shortening your home loan term, there are several strategies you can employ to achieve this goal:

Make extra payments

One of the simplest and most effective ways to shorten your home loan term is by making additional payments whenever possible. Even if it’s just a modest extra amount each month, it can have a substantial impact over time. These extra payments directly reduce the principal balance of your loan, which in turn reduces the amount of interest that accrues. By consistently making extra payments, you can significantly shorten the overall duration of your loan and save money on interest.

Refinance your loan

Another option to consider is refinancing your home loan. If you have a good credit score and qualify for favourable terms, you may be able to refinance your existing loan into a shorter term with a lower interest rate.

Refinancing allows you to replace your current mortgage with a new one, potentially offering you better terms and conditions. By securing a lower interest rate and shorter term, you can save money on interest payments and accelerate the payoff of your loan.

Pay off your loan early

If you have the financial means, paying off your home loan early can be a highly effective way to shorten your loan term and save a significant amount of money on interest. This typically involves making a lump sum payment towards the principal balance of your loan. By reducing the outstanding principal, you reduce the overall interest that would have been payable over the remaining term of the loan.

However, before opting for this strategy, it’s crucial to assess your financial situation carefully and consider any potential prepayment penalties or fees associated with early loan repayment.

Consider biweekly payments

Another strategy is to switch from making monthly payments to biweekly payments. With this approach, you make half of your regular monthly payment every two weeks. Since there are 52 weeks in a year, you end up making 26 half-payments, which is equivalent to 13 full payments.

By effectively making an extra payment each year, you can accelerate your loan repayment and shorten the term.

Seek professional advice

When considering any of these strategies, it’s advisable to consult with mortgage professionals or financial advisors who can assess your specific circumstances and guide you through the process. They can help you evaluate the potential savings, navigate the refinancing process, and provide personalised recommendations based on your financial goals.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Tips for Australian expats living overseas and foreign buyers

If you are an Australian expatriate living overseas or a foreign buyer looking to shorten your home loan term, there are a few additional considerations to keep in mind:

Eligibility requirements

Before proceeding with shortening your loan term, it’s important to ensure that you meet the eligibility criteria set by lenders. Some lenders may have specific restrictions or requirements for expats or foreign investors.

For example, you may need to be a permanent resident of Australia or meet certain income or documentation requirements. It’s advisable to research and reach out to lenders who cater to expats or foreign buyers to understand their specific criteria.

Fees and costs

When exploring options to shorten your loan term, be mindful of any associated fees and costs. Refinancing your loan or making extra payments may incur fees such as exit fees, establishment fees, or transaction fees. It’s essential to factor in these costs and assess their impact on the overall savings you aim to achieve.

Consulting with a mortgage broker or financial advisor can help you evaluate the potential costs and benefits more accurately.

Seek professional guidance

Engaging the services of a mortgage broker can be particularly beneficial for Australian expats or foreign buyers.

A mortgage broker specialises in connecting borrowers with suitable loan products and can assist you in navigating the complexities of shortening your loan term. They can provide valuable insights, help you understand the specific requirements and options available, and guide you through the application process.

Research loan options

Australian expats and foreign investors may have access to different loan options compared to residents. It’s crucial to research and compare loan products specifically tailored for expats or foreigners. These loans may offer favourable terms, including competitive interest rates or flexibility in repayment structures.

Conducting thorough research or consulting with professionals can help you find the best loan option that aligns with your unique circumstances.

Consider tax implications

Depending on your country of residence, there may be tax implications associated with shortening your home loan term.

It’s advisable to seek advice from tax professionals who specialise in international taxation to understand any potential implications or benefits specific to your situation. They can help you assess the impact on your overall tax position and provide guidance on how to optimise your financial situation.

Save By Shortening Your Home Loan Term

Shortening your home loan term is a smart financial move that can lead to significant savings on interest and expedite your journey towards achieving your financial goals. Whether you choose to make extra payments, refinance your loan, or pay off your loan early, the benefits are clear.

If you are an Australian expat or a foreign investor, it’s important to consider any specific requirements or limitations that may apply to your situation. To explore your home loan options and receive personalised advice, it’s highly recommended to speak with a mortgage broker who specialises in working with expats and foreigners. They can provide invaluable insights, guide you through the process, and help you make informed decisions.

Take the next step towards shortening your home loan term and schedule a consultation with one of our expat mortgage brokers to discover the best path for your financial success.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently asked questions

The amount you can save by shortening your home loan term depends on the length of your current loan term, the interest rate on your current loan, and the interest rate on a new loan. As a general rule, you can save about 1% of the total loan amount for every year you shorten your loan term.

There may be fees associated with shortening your home loan term, such as an application fee, an appraisal fee, and a loan origination fee. These fees can vary from lender to lender.

Finding a mortgage broker involves these key steps:

  • Online search: Search online for mortgage brokers in your area. Look for those specialising in working with expats or foreign buyers. Explore their websites, read reviews, and gather information about their services and client testimonials.
  • Recommendations: Ask friends, family, or colleagues for broker recommendations. Their firsthand experiences can help you find a reputable professional.
  • Professional associations: Check industry organisations such as the MFAA or FBAA for broker directories or referral services.
  • Qualifications and credentials: Inquire about the broker’s qualifications, certifications, and licences. Ensure they are licensed and regulated. Look for industry certifications and memberships.
  • Experience and expertise: Consider the broker’s experience working with expats or foreign buyers. Look for a track record of success in similar situations.
  • Fees and transparency: Ask about fees and charges, ensuring they are transparent. Compare fees among brokers.
  • Initial consultation: Schedule an initial consultation with shortlisted brokers. Discuss your needs, ask questions, and assess their professionalism and understanding.
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