Repay your loan faster

The bottom line is there is no magical way to pay a loan off faster. If you owe $100,000 you must pay back $100,000. When you repay more than the minimum required, your loan is paid off faster than first predicted. You are able to do this in a couple of ways. You can either pay off lump sums periodically or alternatively chip away by paying a bit extra each time you make a repayment.

If you take out a $500,000 loan over 30 years with an interest rate of 5 per cent, your minimum repayment will be $2680 per month for 30 years. If you added as little as $150 a week to your minimum repayment you will reduce the length of your loan by 10 years!! That is paying your loan 30 per cent faster as you pay less interest.

If you are a salaried employee this method is attractive as you know how much you will receive each and every pay cycle and can budget accordingly.

Self-employed borrowers may be better off paying extra lump sums during their busy periods and sticking to the minimum requirements during the quieter times.

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