How could you shave years off your home loan?

August 21, 2020

As Australia enters its first recession in almost 30 years, getting on top of your current debts and understanding any future debts has never been more important. Home loans are by far the biggest debt most customers will ever have, but there are ways you can shave years and possibly thousands of dollars off of your home loan.

If you’ve recently had a home loan approved or are already some way into your repayments, or might just be considering in buying a new home, you may be thinking of ways you can pay it off sooner rather than later.

We have created 8 tips that could aid and assist you to make sure you have the tools in your arsenal to shave years off your home loan.

First things first, do you have a home loan that suits your needs and works with your lifestyle and goals? It’s not just about looking at the interest rate, a home loan that offers an offset account may come with a higher interest rate than a competing product, but it could be some lenders may cap the amount you can repay in a year so be sure you take a look at the terms and conditions of making extra repayments with any lender.

That brings us over to out next point which is to increase your regular payment amount. Some lenders may allow you to switch from monthly repayments to fortnightly repayments. Because interest on home loans are calculated daily, making payments more frequently may help reduce the interest you pay over the term of your loan.

Paying more than your required repayment is also another way to reach your home ownership goal sooner. By increasing your repayment amount even only by $50 a month, it will allow you to pay off your home loan faster. Extra repayments save you time on your loan by chipping away at your interest much faster than your original home loan timeline.

You could also focus on making irregular lump sum payments if you cannot commit to a higher fixed repayment amount as your monthly repayment. As already discussed, you just need to ensure your home loan allows for extra repayments. Making additional lump sum payments – especially during the early years of your home loan – can have an effect on how much your total home loan repayment will be and the length of time to own your property. Consider putting your tax refund, bonus or inheritance towards your mortgage which could save you thousands in interest.

If you have reviewed your home loan and found that it doesn’t suit your needs, you may want to consider refinancing your home loan. As of recently, refinancing home loans has exceeded a record high as the Australian home lending and property market drops, there’s no shortage of homeowner’s negotiating their existing loans down.

Work out what features of your current loan you want to keep and compare the interest rates on similar loans. If you find a better rate elsewhere, ask your current lender to match it or offer you a cheaper alternative. Keep in mind that comparison websites can be useful, but they are businesses and may make money through promoted links. They may not cover all your options, so sometimes it’s better to go through each individual lender.

couple looking at comparison website for their home loan

If you decide to switch to another lender, make sure the benefits outweigh any fees you’ll pay for closing your current loan and applying for another. However, renegotiating your current rate with your existing lender or moving to a new lender that offers a lower interest rate may result in savings and help reduce the term of your principal and interest loan.

If you’d like to take advantage of features like redraw and offset facilities, plus the ability to make extra repayments, talk to us about making the most of your loan.

An offset account is a transactional savings account linked to your home loan. A mortgage offset account allows you to offset, or reduce, the interest charged on your home loan by letting you pay down the principal loan amount with your savings. This reduces the amount of interest you pay and helps you pay off your mortgage faster.

For example, you have a home loan balance of $400,000, and you put $20,000 into an offset account. By doing this, you’ll only need to pay interest on a balance of $380,000 ($400,000 – $20,000) rather than $400,000.

The more money you have in an offset account, up to the balance of the loan, the bigger the savings and the faster your loan can be paid off. However, if your offset balance is always low, it may not be worth paying for this feature.

woman using calculator to calculate interest payments for home loan

Related: What are the costs of refinancing vs the benefits?

It’s not all about the big 4 banks – non-major banks are also leading the way in home loans. Macquarie, Bendigo & Adelaide Bank and Suncorp are the sixth, seventh and eighth biggest players in the Australian home lending sector, accounting for 7.8 % of the market.

Non-major lenders may also offer a more personalised service, as they tend to offer home loan options that the big banks done, such as longer loan terms, lower ongoing fees and lower interest rates. You could also be offered a fixed rate with 100%offset account and higher lending ratios (LVR) – this means you can have less of a deposit to save.

Related: How can refinancing potentially boost your cash flow

When variable interest rates fall, some people like to reduce their repayments. It’s tempting but think about keeping your repayments as they are. It’ll mean you end up paying more off your loan sooner.

If you’re thinking about applying for an interest-only loan structure to reduce your repayments, do you research. Australian Securities and Investments Commission (ASIC) have some useful information for customers using an interest-only repayment period as part of their loan term.

Paying both the principal and the interest is the best way to get your mortgage paid off faster. Most home loans are principal and interest loans. This means repayments reduce the principal (amount borrowed) and cover the interest for the period. With an interest-only loan, you only pay the interest on the amount you’ve borrowed, and these loans are usually for a set period. Your principal does not reduce during the interest-only period. This means your debt isn’t going down and you could be paying more interest.

You might also like: How can I take advantage of low interest rates?


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Are you on the lookout to save more on your home loan? Contact eChoice to help you work out your home loan options. With access to 100s of mortgage products from over 25 lenders, eChoice has the resources to get YOU the right home loan deal.

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