Why pay loans and mortgages off faster?
Paying off your loan faster can save you thousands in interest payments. One simple way to get ahead is to pay your loan fortnightly instead of monthly. In effect, you make the equivalent of 13 monthly payments a year instead of 12. Fortnightly payments will cut four years off a 20-year home loan of $200,000. And if you can pay an extra $100 per fortnight, you will cut seven years off your loan. If you have some money to spare, consider reducing your loan balance. Paying $1,000 off a credit card charging you 16% interest obviously beats putting the same money into a term deposit earning 5.5%. Also, remember the effect of tax. Paying $1,000 off a loan charging interest of 6.5%, saves a full $65. Even if you could invest the money somewhere else that earned $65, you would then have to pay tax. Be careful about claims that refinancing will pay off your loan faster. You can only pay off loans faster by paying more money. Only refinance if you are sure the savings outweigh the costs.
