Donna’s Top 4 Tips to smash your home loan!
Nothing satisfies me more than helping my clients repay their home loan as fast as they can. When you buy your first home it is so exciting but when the reality of a 30-year mortgage sets in it can be quite daunting. Don’t let your mortgage get the better of you – be in control and do all you can to repay it as fast as you can. Some of these steps are simple and can save your thousands of dollars and years in repayments!!!!
With record low interest rates there has never been a better time to be doing all you can to repay your mortgage.
Here are my top 5 tips that can hopefully help you smash your home loan!
1.Find a cheaper interest rate
Sounds so easy! Guess what! It is!!!
Have a look at your interest rate and do some research on what banks are offering new clients. Unfortunately, banks will offer new clients awesome rates but won’t offer the same rates for existing long term loyal customers. Once you establish what you can get in the marketplace ring your bank and ask them for a payout figure. They will transfer you to their retention team. You can then negotiate with them to reduce your interest rate. They may not give you the rate you’ve asked for but they should still lower it. Every basis point reduction counts! Most importantly when you get a rate reduction DO NOT lower your repayment! By having a lower rate and the same repayments you will save thousands of dollars in the long term.
If you want to make it easier let a Mortgage Broker do the work for you. They have access to many lenders and generally do not charge a fee for all their work as the bank will pay them a commission.
2. Increase the frequency of your repayments – Weekly, fortnightly or monthly?
On a typical 30-year mortgage, anything extra you pay in the first 5 to 8 years (when most of your payments go towards paying off the interest) will cut your interest bill and shorten the life of your loan.
The most important thing to know about home loans is that interest is calculated on the daily balance and charged to the loan account monthly in arrears.
One of the easiest ways to pay down your mortgage faster is to make your home loan repayments fortnightly instead of monthly.
If you get paid fortnightly, you’ll find this is an easy and convenient way to make your repayments – and there’s no need to pay more money to make a big difference.
Just by splitting your mortgage payment in two and paying more often, you could cut years off your loan term and save a lot of money in interest.
There are 26 fortnights in a year, but only 12 months. By paying fortnightly, you will be effectively making the same as 13 monthly repayments every year – paying more without making an impact on your budget. Over a 30 year loan, this could shave up to 4 years off your loan term and also save you some interest over the life of the loan.
3. Have an offset account (or multiple offset accounts)
An offset account is a transaction account linked to your home loan. The money you have in this account will offset the interest you owe on you home loan, that is, you’ll only the pay the interest on your home loan less your offset balance. For example, if you have a home loan of $400,000 and you have $50,000 sitting in the offset account then you are paying interest on $350,000 (ie $400,000 – $50,000 = $350,000)
There are two different types of offset accounts – A full offset account and a partial offset account.
A full offset means that 100% of the funds in your offset account will be deducted from what you owe on your home loan before interest is calculated. A partial offset gives you a reduced interest rate on the part of your home loan equal to the balance of your offset account.
You should have your pay go into your offset account to make the most of reducing the interest being charged each month.
4. Set a Spending Plan and Prioritize your Home Loan
One of the quickest (and easiest) ways to pay off your home loan sooner is to pay a little extra off your loan every week, fortnight or month. Simple habits like rounding up your monthly repayments to the nearest $10, from say $1,490 to $1,500, can be a budget-friendly way to make additional repayments. Dropping as little as $10 or $20 extra each week onto your home loan can result in savings of tens of thousands of dollars in interest charges and cut years off a loan term.
No one likes the term “budget” so we like to create spending plans. It is important to have a mix of fun but if it is all fun and no disciplined savings this will affect you in the long term.
Tightening your belt on some of your less important expenses can add up to significant savings over time.
A really simple way of reducing your expenses is to make sure all your household services are working their hardest for you. It is so easy to compare electricity and gas; internet providers and health insurance are at the most competitive rate.
If you get a saving on your bills don’t spend it – put it straight into your home loan.
There’s no point paying for things you don’t need, or overpaying for things you do need, so find where you can make some savings on your expenses. Your extra savings can then be used to make additional payments on your home loan which will help to pay off your home loan sooner.
At FinFit Donna offers complimentary home loan reviews and a coaching session if you would like to hear more about strategies to repay your mortgage faster.