Many people when considering a home loan, decide purely based on the lowest interest rate alone. However, this may not be the right offering for you. There are many different variables to consider. Something to always keep an eye out for is the comparison rate or true rate. In most cases, this is the actual interest rate you are paying after all the fees and charges attached to your home loan are taken into consideration. For example, if you had a home loan with an interest rate of 3.02% (plus fees) but a comparison rate of 4.12%, the actual interest rate you would be paying for, would be 4.12%.
Tips & Tricks To Pay Off Your Home Faster & Live Debt Free
Extra repayments are obviously key to paying off your home loan faster, however, most people do not understand the fundamentals around this. For example, if you have just taken out a home loan worth $380,000 with an interest rate of 2.96% variable with no ongoing fees, for a 30-year term, your estimated minimum monthly repayments, based on this scenario, would be $1,593.91. However, if you were to pay an extra $200 a month off your loan, you cut approximately 5 years off the loan term, edging you that much closer to owning your home. The reason behind this is because you will only ever pay interest on the balance, not the limit as interest is calculated on a daily basis.
Let’s make one thing clear – Afterpay is not lay-by!!! It is a short-term loan facility and even though you are not getting charged interest for making payments on time, these products can affect you in more ways than one. You should always be wary of products like Afterpay / Zip Pay and other short term loan facilities as even if you don’t proceed with them, they appear on your credit report and the more they appear, there frequency can make an impact your credit score every time you use these facilities. So, when you apply for a loan it will not only give the bank concern and ask questions as to why, some lenders may even instantly decline your application depending on the amount of times you have used the facility.
Not everyone can afford to make extra repayments as people’s budgets are ever-changing these days. That does not mean that you cannot pay off your home loan faster. You can simply pay your same minimum monthly repayment but break it down to weekly or fortnightly instalments, as you only pay interest of the loan balance and not the loan limit. This should not affect you a lot in the short term. This method can potentially save you thousands in the long term, getting you closer and closer to getting you that title deed.
A lot of people would like to live a champagne lifestyle on a beer budget, however, this is just not realistic and paying down your debt is more important than getting that new Louie Vuitton handbag or that business class trip to Vegas. Cutting down your monthly living expenses can increase your chances of becoming debt free faster. This being said do not cut off all luxury’s in life. Just be more aware and accountable for your spending. As an exercise, if you went through each of your transactions in your bank account, you would be surprised how fast these things add up!
Refinancing can be a confusing time if you do not know the industry. Most people don’t, and this can lead people to just look at lower interest rates and getting the maximum loan term to keep initial costs down. If its in your capability, we would recommend refinancing to the lower rate of course but at the same or a shorter loan term as your existing loan. The repayments from doing this may be higher than going for a full 30-year term, however, in the end you will be paying less interest overall and be one step closer to owning your home outright.
There is much confusion when it comes to choosing a package product with an offset account and a base product with a redraw facility. This truly comes down to personal preference as they both essentially do the same thing. A redraw facility allows you to draw back any “over-payments” or loan reductions you have made allowing you to buy larger items (such as renovations / holidays /car / boat / caravan) or to simply pay for unexpected events that occur from time to time.
An offset account, on the other hand, is an account that is used for all your day to day transactions (banking your wages/ paying for groceries etc.) but the balance at any time is taken into account when the bank charges you interest (daily). The bank only charges you interest on the “net” balance of your loan with them and the balance of your offset account.
This can have an enormous impact on your interest charges and consequently the life of the loan, depending upon your spending habits and discipline.
Interest rates are at an all time low and now is the time to investigate into getting a complimentary home loan health check and discovering what potential savings our brokers can find for you.
Remember, we are paid by the banks, so this service is free of charge to you, but may save you thousands in the long run.
Variable Interest Rate