Whether you’re just getting started on your journey to home-ownership, you’re a couple of years in and have started to reconsider your options, or you’re a mortgage veteran who’s frustrated with their lack of progress, the message applies equally.
Getting the choice between a fixed or variable rate can save you thousands in interest in the long run, and when it comes to your home loans, money equals time.
If you’ve taken a fixed rate, there may be a limit to how much extra you can pay off your loan without incurring a penalty. If you’re still in the fixed-rate period of your loan, make sure you contact your bank before making any extra repayments.
With a variable loan, it’s a different story. Greater Bank variable home loans allow you to repay as much as you like off your loan without penalty. (This may not be the case with all banks)
Often, making repayments on your Home Loan becomes just another bill you tick off each month. It’s important not to think about your repayments like this, however.
Each repayment moves you one step closer on the journey from owe to own, so the power is literally in your hands.
A simple way to reduce the size of your mortgage is to just increase the amount you chip away each month. We’re not talking anything excessive – be sure not to break your budget. The important thing to remember is that every extra dollar you pay off is one less dollar you’re being charged interest on.
Getting into the habit of upping your repayments is easiest done earlier on in the loan term.
Another simple thing you can do to help pay off your loan sooner is to change the frequency of your repayments. It’s easily done – just set and forget, and could save you serious money long term.
Making repayments fortnightly instead of monthly means you’ll end up making an extra monthly repayment every calendar year. Think about it – there are 26 fortnights in a year, whereas paying by the month will only end up being 24 fortnightly repayments (12 months).
You can make this change simply in one of three ways:
Every once in a while, life smiles on us in the form of a one-off lump sum payment. Doesn’t matter where it comes from – bonus at work, tax return, inheritance – cash is cash!
As hard as it may be to part with, making a one-off lump sum repayment to your home loan can significantly advance your position on the path from owe to own.
If you can resist the temptation to withdraw the cash and dive into it like Scrooge McDuck, a lump sum repayment will reduce your mortgage balance, meaning you’re only being charged interest on a smaller amount.
If your loan features a 100% offset account, you’re in luck. What you have there is a no-brainer way to reduce the amount of interest you’re paying on your Home Loan, helping you pay it off sooner.
Every dollar you’re able to save in the offset account is effectively removed from the loan total you’re charged interest on.
You owe: $250,000
You have $10,000 saved in your Loan Offset Account
The bank will only charge you interest on $240,000 ($250,000 - $10,000)