We can’t control the economy but we can control our budgets
Borrowers should be taking advantage of low-interest rates and doing what they can to pay off their loans faster. Here are our top tips to really get ahead while the good times roll. Here are our home loan and budgeting tips.
1. Pretend rates are higher
One of the biggest mistakes mortgage-holders make is pocketing the savings from reduced interest rates. The problem is they’re usually spent, instead of being socked away. Try working to a tighter budget, where you make home loan repayments at the rate of 9% per annum.
If for example, you have a $250,000 mortgage over 30 years with an interest rate of 7%, you’ll save nearly 11.5 years and a whopping $150,000 if you pretend the rate is 9% and pay an extra $350 a month.
What’s more, if rates do climb, you will be well prepared financially to cope with them.
2. Make more frequent payments
Switching from monthly to fortnightly payments can slice years and thousands of dollars off your mortgage, with minimal disruption to your budget. By halving the monthly repayments and paying fortnightly on a $300,000 mortgage over 30 years, you’ll save more than six years and more than $100,000 over the life of the loan.
3. Make the most of the windfalls
Put away the travel brochures and get into the habit of spending your tax return and/or professional bonuses on your home loan instead. You should also channel any annual pay rises into extra repayments (if the terms and conditions of your loan allow you to do so without penalty payments).
Providing your loan has a redraw facility, you should be able to access the funds if the need arises.
4. Offset with savings
Link your home loan to an offset account, where your savings are offset against the principal, reducing the amount of interest you pay. The more you have in savings, the lower your repayments.
5. Small change — big difference
Grab the kids’ piggy bank and start stashing your gold coins. You won’t miss one or two dollars in change, but it can make a big dent in your mortgage if deposited regularly over long periods. Just an extra $20 a fortnight will shave nearly $15,800 or more than 1.25 years off a $300,000, 30 year loan.
Pack your lunch and forgo a take-away coffee each day and your interest savings soar to more than $40,000!
6. Ask your broker to shop around
We shop around for the latest technology deals but probably don’t go to the same lengths for our loans. Lenders can no longer charge mortgage exit fees if you decide to break a variable home loan, so there has never been a better time to ask your broker to shop around for a better deal. Your existing lender may even come to the party with a lower interest rate in a bid to keep your business.
7. Bank on your broker
Let your broker do the legwork to find the best loan for your circumstances. You may qualify for a package deal with a discounted interest rate over the life of the loan, which could save you thousands. Your broker also has access to a wide range of banks and credit unions, including more boutique lenders who may be prepared to offer more than the majors.