Do you keep a close eye on your current property loan? Usually, once we have gone through all the business of applying for and setting up our mortgage, we sit back, make the minimum repayments, and otherwise pretty much ignore it. Taking some time to analyse our loans and monitor how well they compare to others can really pay off, both by resulting in more significant savings which we can then invest elsewhere, as well as allowing us to pay off our home loans faster, with the ultimate goal of financial freedom.
One finance tip, for those who pay their loans monthly, is to take that same amount and divide it out over fortnightly or weekly payments. This not only means smaller, more manageable amounts but, because there are 26 fortnights in year, you also end up making extra repayments without even noticing.
For example, if you are currently paying $2400 each month, pay $1200 every two weeks, at year-end, instead of $28,800, you will have repaid $31,200.
Pay a little more
With most loans (mortgages or personal loans), there is nothing stopping you from making more than the minimum repayment whether on a regular basis or every now and then. The minimum payment is exactly that, the minimum payment you are required to make in any given period.
An easy way to do this is to just round up to the nearest $100 or use your bonuses and tax returns to help pay down your loan. Depending on how much your loan is, extra repayments, particularly in the beginning, can save you a lot of money over the life of your loan. For example, on a $300,000.00 loan at an interest rate of 4%, just paying an extra $10.00 each week could save you over $13,000.00 in interest and cut over 18 months off the term of your loan. An extra $100.00 per week could cut over 10 years of the life of your loan and save you over $85,000.00 in interest.
Think about what you could do with all that extra money!
If interest rates fall, don't decrease your mortgage repayments
Even if it is tempting to reduce your payment amount when the fees and rates are less it makes a big difference not to. This will allow you to pay down more of the principal sum with your repayments and means that you'll pay off your property loan faster.
If this is an option for you, consider using an offset account. This will be linked to your home loan, and the monthly interest will be calculated by subtracting what's in this account from the loan. For example, you have a mortgage of $500,000, and you have an offset account with $10,000, interest is only payable on $490,000. This reduces interest and still allows you access to savings.
Bear in mind that different banks have different rules around offset accounts, so it is important you understand the terms and conditions which apply to your account.
Look for a better deal
Home loans need to meet your particular requirements and circumstances, which is why you should review yours every 12 - 18 months. If you suspect that your home loan is no longer right for your situation, it's time to talk to an experienced broker.
An honest broker will tell you upfront if the loan you have is still a good fit or if there are better options out there for you.
Preston Finance & Insurance has many years of local experience and can help you find the right home loan. We are a Cairns based business and are part of the Preston Law Group.
Contact us today to arrange a no-obligation consultation