Your home loan is probably the biggest financial commitment you’ll make in your lifetime. Small changes now can mean big differences later to how much of your home loan you end up repaying – and how long it takes.
1. Skip the honeymoon
Introductory or honeymoon rates are offered by many lenders when you first take out your loan. This is a discounted rate to gain your business but once the honeymoon period finishes, the interest rate will then switch to a higher variable rate.
Beware, once the honeymoon period is over, the variable interest rate is not always a competitive rate compared to some of the basic loans available and could end up costing you a lot more over the term of your loan.
2. Pay more and pay often
Assuming you have a mortgage that lets you pay extra, you should pay more and pay often. Paying a little more each month can save you thousands off your home loan and allows you to pay it off much sooner. In the early stages of your loan, the amount of interest you pay each month can be the majority of your actual repayment. This means little is actually being paid off the amount of your loan. Consider making fortnightly repayments instead of monthly. Since there are 26 fortnights every year, this is equivalent to making an extra month’s payment each year. This means you’ll build equity in your home more quickly, plus pay off your loan sooner and save thousands on interest.
3. Set up a mortgage offset account
A mortgage offset account is a transaction account that is linked to your mortgage. It’s important to know that the amount of money you have sitting in this account will offset the balance of your loan and therefore reducing the amount of interest you pay each month. The savings in your mortgage offset account can be accessed just like a savings account if the need arises.
Be aware that not all offset accounts are the same, some only partially offset your mortgage where there are others that offset it by 100%. It pays to speak to your local mortgage broker to ensure the right structure is in place to gain the most benefit from an offset account.
4. Consolidate your debts
Consolidating your other debts into your home loan can lower your total repayments into a single loan – a single interest rate and one ongoing repayment.
When home loan rates start to rise, your credit cards and personal loan rate will also rise. These are at a much higher rate than the interest rate on your home loan. This can be a great time to consider consolidating these debts by refinancing all of your debt under the umbrella of your home loan.
In most cases, this means that you can reduce the interest of 15 to 20 percent on your credit card or personal loan to around 5.00 per cent (or whatever rate your home loan is at the time).
As this will free up more surplus with your cash flow, any extra repayments or lump sums you make into your new consolidated loan will benefit you in the long run.
5. Switch to a lender with a lower rate
With all the interest rate changes lately, it is time to compare and see how much you could save by switching to a lower interest rate.
It may sound like a simple idea but switching out of your current loan and taking out a loan at a lower rate can mean the difference of years and thousands of dollars.
Before deciding whether refinancing is right for you, it is a good idea to speak with a home loan specialist. As always it depends on your current position and plans for the future.
If you would like to know more about how we can assist you to refinance your home loan contact Financial Scope Melbourne for an obligation free chat.
Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.
Clint Thomasson
Clint has over 14 years experience in Financial Services working with major corporates including NAB, AMP, ANZ, and AXA. With a passion for Mortgage Broking, coupled with his outstanding interpersonal skills, Clint’s drive is all about matching your needs with the right financial solution. Whilst many businesses offer Finance Broking services, the difference you’ll find with Clint is his ability to listen, engage, retain knowledge and accurately match your requirements. Not only that, but he’s also a very friendly and genuine person with a great work ethic – you’ll have full confidence that he will deliver in a timely and highly efficient manner, every time.
