As a mortgage broker I love being able to give people a few hints and tips as how to pay off your home loan quicker. Its not all about extra payments, its often just about maximising structure. Here are some sure-fire tips to ensure you shave years off your home loan
1) Store Savings in your offset / redraw
Using your offset account or redraw facility properly is crucial in reducing your interest burden. I often come across customers who store funds in savings accounts while they have a home loan. The bottom line is your bank pays out less return on the savings account relative to you what you pay them in interest on your remaining home loan balance. In other words the bank is paying you less then you are paying them, doesn’t make sense right??
2) Redirect your salary to your offset account
The trick is to keep your offset balance high by putting every spare dollar into it because the bank calculates you interest burden daily relative to the balance owed. Get your salary paid into your offset account to keep the balance as high as possible and therefore reduce your interest owing on your home loan.
3) Make more payments
Paying over an above the the minimum monthly repayment, regardless of the size of these additional repayments will add up and save you money. If you set this up from the start you won’t even notice the impact to your wallet.
4) Make payments more frequently
Sounds a strange one but pay fortnightly rather than monthly and you will pay at least an additional repayment every year.
5) When refinancing keep your term the same
When looking to refinance you current home loan to find a better suited product and keep your loan term the same. If you only have 26 years left on your home loan refinance to 26 years. Many brokers and banks can push your term back to 30 years to minimise your repayments and over inflate the savings, but in doing so the additional years will cost you thousands. You should look at like-for-like swap so you are not going backward.
6) Beware of debt consolidation
Debt consolidation into your home loan can make sense from an affordability perspective but you need to understand its long terms affects. It might seem like a good idea to clear your pesky credit cards and personal loans to reduce your repayments in the interim but you might end up paying more. Put simply, shifting a 5 year personal loan at higher interest rate into a 30 year home loan at a lower interest rate will not save you anything in the loan run.
At Beyond broking we love helping customers save money and understand their loan products. If you need some help, give us a call.