Home Loan Tips
- Make extra repayments
Both consistent and ad-hoc additional repayments such as bonuses and tax returns work to reduce the principal on your mortgage faster. The earlier in the loan term you begin making additional repayments, the greater the benefit in terms of time and money saved. Australian Capital's Mortgage Eliminator will make extra deposits quarterly for you, but the more you can add in yourself, the faster you can pay off your loan.
- Make your first repayment on settlement date
Your first home loan repayment will generally fall due one month after settlement. Making your first repayment on your settlement date reduces the principal before the first lot of interest accrues on the amount you have borrowed.
- Make repayments more often
If your loan repayment amount is calculated monthly, you can make significant additional savings paying fortnightly instead. This method will result in you paying approximately an additional month’s worth off your mortgage every year, reducing the principal faster.
- Take a loan with an offset facility
Loans with offset facilities allow you to have your salary paid directly into the offset account which reduces the interest you pay on your home loan. The balance of the account is offset against the balance of the loan for interest calculations and because you pay interest daily, this can save you a lot of money over the long term.
- Plan for the future
Planning on starting a family in the next few years? Your family might have to survive on a single income for a while. Many young families make the mistake of not factoring in the financial impact of having children in their repayment calculations. Plan for any contingencies now, before you purchase your new home rather than when it’s too late. In a similar vein, make sure you can handle any future interest rate rises when calculating how much you can borrow. By borrowing slightly less and keeping a buffer between your income and the size of your loan repayments, you may save yourself from much heartache in the future.
- Align your loan repayments with your income cycle
This allows you to keep as much money as possible on your loan at all times. Leaving extra money in your loan for just a few days each month can have a substantial effect on the interest you pay and the overall term of your loan. Set up your repayment periods with the same regularity as you get paid. So, if you get paid fortnightly, make fortnightly repayments on your home loan. By structuring repayments this way, you will always be in a position to maximise the amount of money paid against your home loan.
- If interest rates fall, don't lower your repayment
Take advantage of it by trying to maintain the old level of repayment. You'll pay off your loan a lot sooner and save yourself a bundle in the meantime. Using this strategy, you're effectively making regular extra repayments, because you're paying more than the minimum monthly requirements each month. But because you're used to paying this amount already, you won't even notice.