Buying your dream home is one of life’s greatest achievements. Majority of people work hard for many years in order to pay off their home loans sooner. To help ease the burden, we have compiled a list of our top five tips to pay back your home loan sooner.
1. Enjoy Your Morning Coffee at Home
Curbing your caffeine addiction probably won’t solve all your financial woes, but there’s a reason so many people swear by this small but effective change.
$5 a coffee X 5 Days a week = $25
$25 a week X 40 working weeks = $1,000 a year
Spending $5 on coffee from your local café whilst rushing to work, isn’t going to break the bank; but what happens when you add on a $4 muffin twice a week? Or an additional coffee to push you through the afternoon? Chances are if you have a partner, they also enjoy a coffee on the morning commute and something sweet between meetings, doubling expenditure and generating an annual $3000 “coffee fund”.
With the average home brewed coffee costing 20c, staying in a little longer can save you:
- $3,000 a year,
- $30,000 across a 10-year period; and
- Over $90,000 between you and your partner over 30-years.
Getting into habits of making your own coffee will not only save you thousands of dollars, but it’s also beneficial for the environment and will make catch ups and café visits something to look forward to.
2. Skip Those Weekend Breakfasts and Lazy Food Choices
Similar to the idea of brewing your coffee from home, creating meals in the comfort of the kitchen and making conscious decisions about where your food is coming from will earn you thousands of dollars towards your home loan repayments each year.
Spending $50 a person during the week on dining out or fast food seems like a small price to pay for the convenience, especially on Friday night after a week of work. But when you eliminate $100 weekly on eating out for yourself and your partner, you are looking at adding $5,200 towards your home loan.
The additional health benefits that come from being your own chef are also notable. Making health-conscious decisions regarding diet and regular exercise will not only assist in your saving goal but will also improve your wellbeing and quality of life. Maintaining your health and taking advantage of your workplace’s health benefits will also reduce money spent on the higher healthcare costs incurred when issues develop and require more serious treatment methods.
Already, by combining these two tips you’re looking at saving an additional $8,000 a year.
3. Get Rid of AfterPay and Zip Pay Accounts
In the past two years, Australians have seen the introduction and enormous rise in ‘buy now pay later’ providers such as AfterPay and Zip Pay.
Rising from just 400,000 users in 2016, to a whopping 2 million users at the end of the 2018 financial year, their success is hard to deny. It’s also hard to deny the way such services have shifted spending habits amongst young Australians.
In a society that values economic growth and material possessions as markers of success, it’s not surprising that 1-in-6 of AfterPay and Zip Pay’s users (60 percent of whom are Millennials) have found themselves with debts they can’t repay. Which is why ditching these money pit applications will be one of the best financial decisions you’ve made. Proven to increase impulse spending, the sole cause of a 50% rise in annual spending from ‘buy now pay later’ consumers and the reason behind a collective national debt of $1 billion, these services will prove a natural enemy to your financial goals.
4. Consolidate Credit Cards and Personal Loans
Australians are known for our hard-working attitudes, but with so many high-cost investments essential to daily functioning – buying a house, purchasing family cars, education costs, accessing technology – a healthy amount of debt is seen as normal and often vital factor in the survival and achieving milestones. But juggling too much debt, in too many locations can end in disaster and keep you further from your financial goals.
You can achieve this through combining debts into an easy to manage ‘debt consolidation loan’, transfer existing credit card and/or store card debts onto a single credit card with improved interest rates, or by combining debt with a top-up on your home loan.
You’ll eliminate unnecessary card fees, repayments will become easier to manage, with only one monthly statement and one set of monthly fees.
Lower interest rates, less monthly fees and an easier repayment system is guaranteed to assist in the tackling of life’s debts.
5. Frequently Review Your Home Loan Interest Rate
A Loan-to-Value (LVR), is a percentage comparison of your required loan amount and the property’s value, expressed as a percentage. You can calculate your personal LVR through online calculators, or by dividing your loan amount by the total value of the property.
LVRs of <80% are desirable to potential lenders as it signals that more money invested in the house will lead in less financial loss for the borrowers’ in the case of default. If you can put down a 25% deposit, then you already own a quarter of the house that won’t be acquiring interest. Lower LVRs often volunteer you for lower interest rates, lenders acknowledge that without the need to borrow larger amounts, you forgo the additional fees and charges attached to higher risk recipients. High risk home loans, or home loans with a LVR above 80% are more than likely to incur an extra fee known as the Lender’s Mortgage Insurance (LMI), which generally costs 2% of the loan value. LMIs are put into place to ensure that lenders are financially protected if you fall through. Dodging LMI fees can end up saving tens of thousands of dollars throughout home loan repayments.
Another advantage of saving for a sizable deposit is ‘proof of savings’. A proven ability to save money will signal your reliability. Simply put, putting in the effort to save a little more for a down payment will provide a range of money saving opportunities.
Whilst pre-purchase research is essential in building a strong foundation, revisiting and reassessing you LVR can also assist in repaying your home loan sooner. With changes to the housing market and property values, as well as changes in careers and economic stability, spotting opportunities to further bridge the gap between loan amount and property value will allow for adjustments that will see you smashing your financial goals.
While it seems like a lot to take on, it is important to remember that increasing savings and repayments - regardless of how much or how little – is always a step in the right direction and that savings amounts can always be increased further down the track.
But by combining small and simple money saving tips, you can compile a decent amount of finances without any huge lifestyle changes.