There are always steps borrowers can take to pay their loan off faster. To begin your journey, here are a few ideas that may help you along the way.
1. Skip the Honeymoon Rate
There are two problems with honeymoon rates. Firstly, the variable rate is often higher than some of the lower basic loans available so you could end up paying more. Secondly, you need to clearly understand that a honeymoon rate applies only for the first year or two of the loan and is a minor consideration compared to the actual variable rate that will determine your repayments over the next 20 or so years.
Ask us today to compare Home loans on your behalf.
2. Make Repayments at a Higher Rate
A good way to get ahead of mortgage commitments is to pay it off as if you have a higher rate of interest. Get a loan at the lowest interest rate you can and add 2 or 3 percentage points to your repayment amount. So if you have a loan at about 4.00 percent and pay it off at 7 per cent, you won’t even notice if rates go up. Best of all, you’ll be paying off your loan quicker and saving yourself a packet.
Every dollar you put into your mortgage above your repayment amount attacks the capital, which means down the track you’ll be paying interest on a smaller amount. Extra lump sums or regular additional repayments will help you cut many years off the term of your loan.
3. Make More Frequent Payments
One of the simplest and best strategies for reducing the term and cost of your loan (and thus your exposure should interest rates rise) is to make your repayment on a fortnightly rather than monthly basis. How can this make a difference I hear you ask? It works like this:
Split your monthly payment in two and pay every fortnight. You’ll hardly feel the difference in terms of your disposable income, but it could make thousands of dollars and years difference over the term of your loan. The reason for this is that there are 26 fortnights in a year, but only 12 months. Paying fortnightly means that you will be effectively making 13 monthly payments every year. And this can make a big difference.
Using our example from above, by paying monthly, you will need to repay $640,126 over the term of your loan. By paying fortnightly, you will save $48,534 in interest and 4.5 years off the loan. Zero pain to you, major benefit to your pocket.
4. To Package or not to Package
Speak to your lender about the financial packages they have on offer. Common inclusions are discounted home insurance, fee-free credit cards, a free consultation with a financial adviser or even a fee-free transaction account. While these things may seem small beer compared to what you are paying on your home loan, every little bit counts and so you can use the little savings on other financial services to turn them into big savings on your home loan.
Keep in mind that most Lenders will charge an annual fee for the features available under the package. This needs to be weighed up with the usage of the benefits versus the potentially cheaper price of a discounted basic home loan with less features.
Compare home loans for the features that you will actually use.
5. Run an Offset Account
Instead of earning interest, any money you have in your offset account works to offset the interest you are paying on your home loan. For example you may have a mortgage of $300,000 at 4.00 percent and an offset account with $50,000 in it..
This means that your loan is only accruing interest on $250,000. Imagine how much you can save!
Keep in mind, an offset feature will often be part of the package options that incur an annual fee. This strategy can work best for those with higher cash balances available.
Compare home loans with and without offset features to determine your available benefit.
To discuss these strategies further or to obtain a health check on your existing loan, please simply call for a free no obligation chat.