When interest rates are low, its the perfect time to pay down your home loan.
Here are 5 things you can do right now to get ahead.
1. Secure the best home loan rate you can
Is your lender giving you the best deal? How do you know? The home loan market is fiercely competitive and if you established your mortgage a few years ago, there’s a good chance your current lender is offering a better deal to new clients and hasn’t explicitly extended the same offer to you.
If you’re not sure how (or who) to ask for pricing discounts off your existing loans, let us know. By conducting a thorough review of your home loans, we can identify potential ways for you to save interest. Every little saving will help you to own your loan sooner.
2. Take advantage of home loan features available to you
Different loan structures are best suited to different clients. A basic loan with the lowest possible interest rate might be best for you, whilst your neighbour may benefit more from the bells and whistles of a professional package. Using an offset account* in conjunction with a credit card can be a great way to reduce your interest costs and your net debt. Just remember you need to pay off the full balance of your credit card bill at the end of each month for this strategy to be effective.
Are you using all the features of your home loan? Since you’re most likely paying for them through account keeping or annual package fees, make sure you’re using them. If not, you’re wasting money by paying for features you don’t need in which case, you would probably be better to a different type of loan.
*If you have an offset account, but need a reminder on how to use it you can read all about it here.
3. Pay as much as you can into your home loan (or offset account)
If you have a variable rate loan, your minimum monthly repayment changes with interest rates. So when interest rates fall, your minimum monthly repayment does too.
This is good news because it means you incur less interest. However, if you continue to make the same repayment as you did before the rate drop, you can save even more interest by getting ahead on your home loan!
In fact, if you can manage to pay more than that, do it! The more you pay off in the early years, the faster you reduce the principle amount you owe and therefore the more interest you save over the long term.
Paying tax refunds or other windfalls (if you’re lucky!) directly into your loan as lump sum amounts will also help you to pay off your loan faster.
4. Make home loan repayments as frequently as you can
Interest is calculated on the net debt you owe to the lender. This means any time you make a repayment that reduces the principal loan amount (even if it’s by a tiny amount), you are reducing your interest costs.
So if you’re serious about paying off your loan faster and saving as much interest as you can, paying repayments more frequently (i.e. true fortnight repayments) might be the way to go.
5. Make paying off your home loan a priority
It’s just like any other goal. If you don’t make the commitment to own your home sooner, it won’t magically happen by itself.
Think about setting up a recurring payment each month to make extra repayments to your loan. That way, additional payments can happen automatically without you even realising (well, kind of!)
