When you buy property, whether as an investor or owner occupier, you need the loan that’s right for you. And the right loan is the one that fits your strategy. Here are some tips to help you repay your home loan sooner.
Tip 1: Get a cheaper interest rate
Probably the single biggest opportunity to reduce your mortgage is to find a cheap interest rate from the start. Shop around with major banks and other lenders such as credit unions and building societies.
But a word of warning; the benefits of a cheap interest rate may be nullified if you are saddled with high fees and an inflexible product. So do your homework and find out which mortgage offers a cheap interest rate with lower fees and a combination of home loan features that you need. Your mortgage broker can help with this, saving you time, money and stress.
Tip 2: Get a loan with a flexible payment structure
If you plan to make extra repayments, make sure your mortgage allows you to make your regular payments plus one-off repayments without penalty. Choose your features wisely because they may cost extra.
Tip 3: Make extra payments as early as possible
You may not realise that most payments made at the beginning of a home loan go towards paying off interest, not reducing the principal of your mortgage.
So any extra payments you make from the very beginning go towards reducing the principal on your loan, which reduces the pay-back period and total interest payments.
Tip 4: Make your first mortgage payment on settlement date
This is another excellent example of how making early payments can reduce the principal and future interest repayments on your mortgage.
Tip 5: Make more frequent repayments
Where interest is calculated daily, making payments more frequently – whether fortnightly or weekly – reduces the interest charged on your mortgage. This is because you’ll be making the equivalent of 13 monthly repayments each year, which reduces the principal and term of your loan.
Tip 6: Paying income directly into your home loan
As interest is calculated daily, getting your salary credited directly to your home loan account reduces the principal you owe from the moment your salary is in the account. This in turn reduces the interest you are charged.
Tip 7: Don’t lower repayments if interest rates drop
Your minimum mortgage repayments will usually fall if interest rates drop. Rather than reducing your payments at this stage, maintain your previous payment levels. This particular method has an added benefit in that you will hardly notice the difference since you are used to making payments of that amount anyway.
Tip 8: Get an offset account
An offset account is essentially a separate savings account linked to your home loan account. The balance in this account is usually subtracted from amount you owe. So if your balance is $20,000 and your home loan was originally $300,000, interest is charged only on $280,000. Keep in mind some lenders require a minimum balance in these accounts. Consult your Liquidity Finance mortgage broker to find out if lenders have other requirements.
Tip 9: Get your household budget in order
Most singles or couples who earn more than $90,000 could save about $500 a month just by trimming little luxuries such as smoking, drinking or that extra cup of coffee during the day. Utilise your budget both before and during the life of your mortgage to ensure you meet your mortgage repayments comfortably.
Tip 10: Keep in touch with your mortgage broker
There may be many changes in the home loan market and your own finances over the course of your home loan so it is wise to stay informed and consult your mortgage broker regularly.
By Sandra Crossland
Sandra is a qualified Mortgage Broker with a Diploma of Financial Services (Finance/Mortgage Broking Management FNS50504) and has been helping people achieve their dreams of home ownership since 2006.