No one wants to pay more than they should be on their home loan. Think the banks make enough money? We’ve put together the five simplest ways to save money on your home loan.
Keep in mind that these tips are general in nature and should not be considered specific advice. Some of these tips may not apply if you have a fixed interest rate with restrictions on extra repayments.
If you have excess funds available consider putting them to work in your home loan.
We often see borrowers put their spare savings in a savings account rather than into their home loan. This makes little sense. This doesn’t make sense when the interest earned on savings is less than the interest rate paid on a home loan.
A lump sum payment done early in your loan can shave years off your loan. This helps reduce your loan balance, as well as the interest you would have paid on that balance over time.
If you receive a tax refund consider paying it off your home loan.
Some lenders charge extra fees for having many loan accounts open. If this is causing you to pay extra fees you might consider looking into combining the loans. The lender might have a packaged loan option allowing you to cut monthly fees and pay an annual fee instead. This is not always worthwhile so make sure you do your sums.
If your lender includes an offset account with your home loan ensure you are using it.
Lenders often set up repayments as monthly. We often recommend to our clients to pay their loans more often. Borrowers often look to align their loan payments to their salary. For example if they get paid fortnightly, they make their loan repayments fortnightly.
For borrowers who choose to pay half the monthly repayment fortnightly it can reduce your loan term by approximately six years. The reason it is so effective is that it forces you to make one extra monthly repayment per year. This works due to their being 12 months in a year, compared to 26 fortnights.
We’ve covered this in more detail in the article How To Pay Off Your Home Loan Faster.
Paying more than the minimum can help you reduce your home loan balance. This isn’t rocket science, the more you pay, the quicker you pay off your loan.
Some simple ways you can pay extra without thinking about it include:
The most important tip we can give is to ensure you have the right home loan for you. This includes ensuring that you are paying the least for the features you need.
It is important to note this may not always be the loan with the lowest rate. It may be worthwhile for some borrowers to pay ongoing fees for the use of an offset account. For other borrowers it may be more important to pay no fees at all, but a slightly higher interest rate.
If you’re confused about the right loan for you we can help. Using our specialist software and expert knowledge we can crunch the numbers to find the right home loan for you. Just get in contact with us about our obligation free mortgage broker service.