Simple maths will tell us that the more we pay onto our home loan the faster we will have it paid off- but what if there are better ways of sticking it to the man?
1. Sort out your frequency:
Majority of home loans are paid on monthly repayment terms but if you pay your loan off fortnightly or even weekly this can save up to 3 years off your mortgage.
|Required Repayments Per Year||$1,934 x 12||$483.50 x 52|
|Total Paid Per Year||$23,208||$25,142|
|Extra Paid Per Year||n/a||$1,934|
|Total Interest Payable Over 25 Year Loan Term||$230,054||$195,391|
|Interest Saved Over 25 Years||n/a||$34,663|
|Time Saved By Repaying Loan Early||n/a||3 years|
Note: Source: www.canstar.com.au
Based on a home loan of $350,000 with a 25-year loan term, at the current average standard variable interest rate of 4.44% p.a.
2. Offset accounts are a must have!
Make yo’ money work for you! At Pursue Wealth we love the idea of having multiple offset accounts to help you reduce the amount of interest you pay on your loan but without restricting your spending.
So, what is an offset account? It looks and feels like a normal bank account but it is much, much more. The balance of your offset account reduces the amount of ‘principal’ you are paying interest on.
Some banks won’t allow these little gems, some will only allow 1 but with some special banks allow you to have multiple offset accounts. Here is how it works; with say $5,000 in an account which is setup as an offset and you have a home loan of $400,000 then you will only be paying interest on $395,000 because your $5,000 is working to reduce your effective interest- music to my ears! How do you set this up, you might ask? Talk to your mortgage adviser and see what they can do, if they aren’t willing to play ball then maybe it’s time to consider changing banks.
3. Sort out your interest rate
When it comes to looking at your interest rate we are all sticklers when they apply for the loan searching for the BEST rate. Over time when the question is asked; “what’s your interest?” (other than starting a convo about their interest in tennis 😐) majority will look like a deer in headlights… “ummm around 4%, maybe, I think, ummm how do I even check?”.
Well, now is the time to open up your banking and have a look. Not only is your advertised rate important but more importantly the comparison interest rates is where you should be paying attention. Why? Well, the comparison rate includes all your fees and charges in the form of your interest rate. For example; you could see an ‘advertised rate’ around 3.69% and a ‘comparison rate’ of 4.4%.
4. Reduce your loan duration
The default home loan is generally set as a 25 or 30 year term. Not sure about you, but thinking about paying a loan for the next 30 years makes me realise my dream of retiring at age 40 aint gonna happen. How do you fix this? Changing for your loan term from 30 years to 15 years is going to make you repay more onto your loan every month (or week if you listened to my earlier point) but is going to help you do the ‘Toyota jump’ in 15 years for being debt free!!
5. Every bit counts
I don’t like to be the guy that spoils all your fun, but I’m going to be. Consider putting all your bonus’, tax returns, cash presents onto your home loan. Every bit counts and will help you smash out your loan in no time. Before you do though, make sure you check if it is possible to do so, as a number of fixed home loans only allow an additional $10,000 onto your loan per annum. Variable rates, generally mean you are in the clear to pay down until your heart desires.
Whether you take up some or all of these tips, we should all be focused on reducing non-deductible debt in line with your overall goals. Make sure you talk to your adviser about how to make this part of your financial strategy!
Good luck and go get em’.