Pay off your home loan faster
Reducing the life of your loan isn’t difficult; there are many simple things you can do to cut years off your mortgage. Here are some tips that will help you be mortgage-free sooner than planned.
Small extra repayments
One of the most obvious ways to pay off your home loan quicker is to make extra repayments. Depositing lump sums, such as a tax return or work bonus, will always be beneficial, however it doesn’t always take large amounts or windfalls to make a substantial difference – planning for regular, small cash injections can have a great impact over the life of a loan.
“Let’s say we give an extra $50 a fortnight on a $500,000 loan, that saves you $32,000 of interest over the life of the loan which in turn will save you just over two years,” explains the finance broker. “That’s only $25 a week.”
Switch your payment intervals
If you find that you don’t have the discipline to make extra repayments, then simply switching your payment structure can also help save years off your mortgage, as well as simplifying your finances if you are paid fortnightly.
“Because there are 12 months in a year but 13 four-week cycles, by switching your payment intervals from monthly to fortnightly, you are essentially paying off an extra month per year,” says the finance broker.
Make sure you have the right type of loan
Ensuring your loan allows extra repayments without penalty will let you to make the most of bonuses or funnel small extra payments to reduce the loan principle more quickly, saving on interest immediately, while an offset account will use your savings or living expenses to reduce your principle, while still allowing you to access these funds from a transaction account.
The way it works is to set the mortgage on your investment as interest-only but make the principle and interest payment equivalent by putting surplus rental income into an offset account. Because interest is calculated daily but charged monthly, any money sitting in the account will help reduce the loan.
Although you may have to pay extra fees for the offset or redraw account, these may well be lower amounts than the interest saved.
Paying off your home loan faster isn’t difficult, however it does require financial discipline and expertise in ensuring the right loan features are in place. CA Financial Services Group has an MFAA Accredited Broker who can match you to your perfect loan.
Fixed-rate Home Loans
With interest rates at an all-time low, taking the option of locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive. However, it pays to know the ins and outs of fixed-rate loans before committing to one.
When purchasing a property, borrowers can decide between fixed-interest loans that maintain the same interest rate over a specific period of time, or variable-rate loans that charge interest according to market rate fluctuations.
Fixed-rate loans usually come with a few provisos: borrowers may be restricted to maximum payments during the fixed term and can face hefty break fees for paying off the loan early.
However, locking in the interest rate on your home loan can offer stability.
CA’s Mortgage Broker and MFAA member Jason Antico provided some additional insights:
“For those conscious of a budget and who want to take a medium-to-long term position on a fixed rate, they can protect themselves from the volatility of potential rate movement,” Jason says.
Fixed rates are locked in for an amount of time that is prearranged between you and your lender.
“There are some lenders that offer seven-year or 10-year fixed terms, but generally one to five years are the most popular terms,” Jason says. “The three- or five-year terms are generally the most popular for customers because a lot can change within that amount of time.”
Further to this, fixed-rate loans can also be pre-approved. This means that you can apply for the fixed-rate loan before you find the property you want to buy.
“When you apply for a fixed rate, at the point of application you can pay a fixed rate lock-in fee which will, depending on the lender, give you between 60 and 90 days from the time of application to settle the loan at that fixed rate,” the broker explains.
“You pay a fee to protect your interest rate. Alternatively, you can choose to lock the rate in at the time of actual approval.”
AMP Bank special 3 Year fixed rate.
Right now AMP have just announced a 3 year fixed rate special under their Professional Package
3.99% for a 3 year fixed rate on Owner Occupied Home Loans with Principal and Interest repayments.
They have also coupled this with a VERY attractive variable rate of 3.79% for home loans that are also on Principal and Interest repayments.
With rates this low, this is great time to review your overall strategy with repayments and clearing down debt sooner.
Interested? Please give Jason Antico CA’s Mortgage Specialist a call on 02 9955 7288 or email firstname.lastname@example.org.
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