Pay Loans Faster
The housing market is a huge topic of conversation amongst buyers, vendors, real agent agents, developers, industry bodies, government, anyone really who has a part to play in this booming market. Despite the median cost of a home growing rapidly, people are still buying, so I spoke to Anna Nicolazzo of Choice Home Loans, to share her top tips on paying off your loan sooner;
- Make higher repayments
One of the easiest ways to quickly reduce the balance of your mortgage is to make larger loan repayments. The minimum repayments required on a loan are calculated on the amount owing and the prevailing home loan interest rate. Repaying more than the minimum can cut the overall term of the loan and save you thousands of dollars in interest. If your loan is fixed – check with your broker / lender first as break costs may apply.
- Make more frequent repayments
Home loans are often structured so that you make monthly repayments. But making fortnightly repayments instead can reduce the term of a loan and save interest. By making fortnightly repayments, you are paying the equivalent of half of your monthly repayment every two weeks. This allows you to make the equivalent of one extra monthly repayment per year. Extra repayments will ensure the loan balance is lower at the time of the month the interest is calculated.
- Use an interest offset account
Most lenders allow you to package a mortgage with an interest offset account. An offset account allows you to reduce the amount of interest paid on your loan by offsetting the amount in the (offset) account against your loan balance. Wages and other income can be deposited into your offset account. Note that you don’t earn interest on the funds in the offset account, and that offset is usually only available on variable rate loans.
- Seek out lower rates
Although obvious, many borrowers take out a mortgage and then stop following the home loan market. With interest rates constantly changing, it pays to monitor the latest rates. Contact your broker for a mortgage health check.
- Don’t take the rate cut
When a lender reduces the interest rate on its home loans, usually in line with a cut in official interest rates, your first thought may be to reduce your loan repayments accordingly. However, by maintaining your loan repayments, you effectively repay more than the minimum loan repayment. If it’s possible to do so, this will help you cut the term of the loan and save on interest.
- BONUS TIP) Set up a split loan
A split loan, sometimes referred to as a combination loan, enables borrowers to divide their mortgage into both variable and fixed components. By doing this, you can not only make extra payments on the variable component, but also lock in a lower fixed rate. Extra payments can often be made on the fixed loan too, up to a limit specified by the lender.
By seeking advice and keeping an eye on your mortgage, borrowers can significantly reduce the length of their mortgage and save thousands of dollars in the process. For more information on how you can pay off your home loan sooner, contact Anna Nicolazzo from Choice Home Loans Coburg on 0412 355 182.