Owning your first home is something most Australians dream about. While there’s something comforting about a place to call your own, it can also be daunting having 30 years of repayments ahead of you. When you’re staring down the barrel of your first mortgage, it’s quite natural to wonder how you’re ever going to pay it off. Picture knocking years off your mortgage and freeing up your cash to spend on the things you love. Whether that’s the trip to Machu Picchu you’ve been planning in your head or the vintage set of wheels you’ve imagined driving. To most first home buyers, this sounds like a far-fetched fantasy, but these five smart strategies could help you shave years off your loan and keep thousands in your pocket.

Switch to Fortnightly

Many bank home loans are automatically set to monthly repayments. By paying fortnightly vs a monthly contractual repayment you’re actually adding in a whole extra month’s worth of payments each year. For example, if you’re paying $2,000 on a monthly payment, over a year you’ll pay $24,000 off your loan. If you switch to fortnightly, you’ll pay $1,000 every two weeks which over a year adds up to $26,000. This sneaky $2k is sure to shave years off your loan, reduce the overall amount of interest you pay and help you start building equity sooner. It might not sound like a lot, but over a 25 to 30-year loan, it can make a serious dent.

Wipeout Lenders Mortgage Insurance

In the mortgage world, there’s pretty much an acronym for everything. LMI stands for Lenders Mortgage Insurance. Lenders Mortgage Insurance protects the lender, not the borrower. LMI is usually a one-off insurance payment which protects the lender from any shortfall in the event that you default on your loan repayments. To avoid paying LMI, you need to bring down your Loan to Value Ratio (LVR) to 80%.  Bank speak aside, if you’ve got your heart set on home ownership but haven’t managed to save the full 20% deposit, you’ve got two options. One is to put down a smaller deposit and pay LMI and the other is to have a family member provide a Family Guarantee on your loan. Say your parents have owned their home for 20 years, chances are, they’re well on their way to paying off their mortgage. The family guarantee uses some of the value of their house for part of your deposit, saving you thousands in additional Lenders Mortgage Insurance Costs.

Make Additional Payments

When it comes to making the most of your mortgage, it really is the little things that make the biggest difference. Sounds like a no-brainer, but in reality, most mortgage holders tend to have a ‘set and forget’ mentality. In truth, mortgages need to be managed and if you’re proactive about your repayments you can save yourself both time and money. By paying an extra $50 each week, you could knock nearly $80,000 of interest off your loan and see you mortgage-free, years earlier. If your budget doesn’t have that much wiggle room, think about lump-sum payments like tax returns and unexpected inheritances or windfalls. When you’re paying interest on a 30-year loan, every dollar paid to reduce the loan balance makes a difference.

Let Go Of Little Luxuries

The average Australian spends nearly $1,500 each year on coffee. Add a takeaway sandwich twice a week and two beers after work and you’re down another $2,000. Letting go of these little luxuries doesn’t mean surviving on two-minute noodles and shop-a-dockets, it just means holding back so you can move forward. Simply find the balance between all the time and sometimes. You might be wondering how much damage a $4 latte is really doing, but over time, it all starts to add up. At the end of the day, nothing tastes sweeter than the satisfaction of owning your home outright.

The Offset Opportunity

Offset accounts are exactly the same as normal accounts, the difference being that they reduce the interest you pay and the term of your loan. Offset accounts are the unsung heroes of saving. Say your mortgage is $500,000 and you’ve got $50,000 in your savings account, when it comes to paying interest, that $50,000 offsets the loan balance and means you only pay interest on the balance of $450,000. It basically works like this, loan balance minus savings = balance you pay interest on. Every dollar you deposit in your offset account is a dollar you save on interest which means that over time, your loan costs you less.

Loan Redraw

Using a redraw facility can also reduce the interest you pay and the term of your loan.  Any money paid into your loan above your normal repayment is money that you can redraw out of the loan if needed.  It’s best to leave the money in the loan however, just like a savings account you can ‘redraw’ the money out of the loan to purchase a new car, holidays or emergencies.  While the money is sitting in the loan it is reducing the loan balance which reduces the amount of interest you pay and assists in paying off the loan faster.