Tips To reduce your home loan interest
Interest rate – the single biggest thing anyone is concerned about when they sign up for a mortgage.
We worry about it, is it too high, will it change, how much am I being ripped off!
Funny thing is, once we sign up and get that loan, we go on our merry way rarely thinking about what our home loan interest rate is, until prompted by an event that requires us to consider it again.
But regardless, there isn't anyone with a home loan that would like to limit their interest they pay to the bank.
So here are some helpful tips that require next to no effort at all, that you can do each week and month to make sure you're paying the bank as little interest as possible.
Don't pay monthly!
All home loan products default to a monthly payment cycle. Most lenders will allow you to adjust this to fortnightly or even weekly.
Changing you payments to fortnightly often means you can better manage you money inline with your pay, but it also means you can pay extra off your loan for doing nothing.
There are 12 months in every year, so 12 default mortgage payments. But there are 26 fortnights in a year. So taking your monthly payment and dividing by two to pay each fortnight means your paying an extra payment a year saving you interest and helping you pay off your loan years earlier.
Still paying monthly? We can help with reviewing your home loan to make sure your payments are working for you.
Close your savings!
The number one non-home loan question we get is – What's your best investment tip? Or something like that. While we're not financial planers or investment advisers, what we do tell our clients, especially first home buyers, is to close all of your savings accounts.
As at May 2017, the standard variable rate across most major lenders was at least 5%. But the maximum deposit rate was 3%. You will always be paying a higher interest ate on your home loan that you'll ever get on a savings account.
So as long as you have a variable rate home loan, or a (fixed rate) home loan product that allows you make at least some form of extra payment over and above the minimum, you're much better off putting your savings into your home loan, or an offset account, to save you having to pay the bank more than they would ever pay you in a savings account.
Will your current home loan allow you to do that, and give you easy access to the extra payments if you need them in the future? Speak to us to make sure your home loan product is working for you.
Set your own repayment!
You're obviously required to make the minimum payment to your loan based on your current rate.
As mentioned above, many loans will default to minimum monthly payment cycles. But could you afford to pay just a little bit more?
Even an extra $50 a month can take years off your home loan and save thousands in interest.
Most home loan products will allow you to set you own payment amount over an above the minimum, it also helps give you a buffer to any potential interest rate rises.
Does you home loan allow you to set you own payment amount? Ask us and we'll let you know.
Don't change repayments when rates comes down!
No one really knows when rates will go up or come down. Obviously if you have a mortgage, you're happy to see them going down rather than up.
As a normal loan lasts at least 30 years, there will be many occasions where you interest rate changes.
Obviously when rates go up, you have to adjust your repayments accordingly. But do you have to change when rates go down?
Whether it's a new loan or current one, when your rate goes down, not changing your repayments means you'll be paying extra to your loan without actually putting any more in – reducing your interest and saving your years off your loan.
How high is your rate now? Could it be lower? Ask as and we'll tell you.
Combine all four of these and you'll be on your way to paying off your mortgage years early and saving thousands in interest.
Our helpful team can put all of these tips in place for you, send us an email or give us a call and we'll get working for you.
Local Mortgage Specialists team - 08 9498 7817 or 0403 816 558
