If one of your new financial year’s resolutions is to start paying off your home loan as quickly as possible, here’s a few tips to get you on your way.
1. Interest rates are at record lows due to the consecutive RBA cuts in June and July. Most lenders have passed on the reduction in their home loan rates. One strategy to pay off your home loan faster would be to maintain the repayments which applied before your lender reduced their rates in June and July.
2. If your lender didn’t pass on the full rate reductions, contact us to refinance with an alternate provider with a lower rate/ongoing fees than your current loan. Some of the lenders on our panel are offering owner/occupier principal and interest rates as low as 3.29%. If you are not considering refinancing, at a minimum, you can ask your lender if they will match the rate, or reduce your home loan interest rate and/or fees. Your bank may be willing to reduce your home loan rate and ongoing costs as an alternative to losing your loan to another lender.
3. On a principal and interest loan, in the first five or so years, most of your payments go towards paying off the interest. If you are able to make additional payments during this period, or at any time during the loan term, this will reduce the interest payable, and decrease the lifespan of the loan. If you receive a bonus payment from your employment, or a tax refund, resist the temptation to splurge and put it to work for you by making an additional repayment on your mortgage. If you are able to increase your regular repayments, this will save you thousands over the life of your home loan. For example, by paying an extra $100 a month, a typical $400,000 home loan could be reduced by nearly 3 years, with a saving of almost $30,000. Before making additional repayments, check if there are any conditions or limits on extra payments.
4. One of the quickest ways to save on your home loan is to make more frequent payments. If your home loan is on monthly repayment, switch to a fortnightly repayment. Split your existing monthly repayment in two, and make these payments on a fortnightly frequency. You won’t notice the difference in your cash flow, but it will save you time and money on your loan. Repaying your home loan on a fortnightly basis means you are effectively making 13 monthly payments every year.
5. If you have an offset account with your home loan, ensure that your savings and ongoing salary are deposited into the account. An offset account can accelerate paying out your debt as the balance will reduce the interest payable on your home loan.
6. Be disciplined with your discretionary spending! Every dollar you save by cutting back on some of your luxuries can be put to work by making additional repayments on your mortgage, and saving you more in interest repayments over the life of the loan. I’m not suggesting that you adopt a monastic existence and abandon all of your pleasures, but as an example, if you reduce your daily take away coffee consumption by 1 cup a day, you will easily achieve the previously mentioned saving of almost 3 years and $30,000 on a $400,000 mortgage!
Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. Please contact us today for a confidential, cost and obligation free discussion about your lending needs. We would also be happy for you to refer your family or friends so we can also assist them to locate a cost-effective home loan which suits their needs.