Your home loan repayment is most likely the biggest outlay in your everyday budget and it will continue to be for many years to come.
Thankfully, there are ways you can potentially save on interest to help you reduce the length of time you need to pay off your home loan.
But one often hidden fact is that you can also potentially use your home loan to pay off personal or business debts that may be on a higher interest rate.
1. Reduce the interest rates on your debts
Your home loan will likely have the lowest interest rate of all your debts – including debts like personal loans and credit cards. If you are self-employed you may also have debts for your business that are attracting higher interest rates.
An opportunity often overlooked is that using your residential home loan as security, may allow you to refinance personal and business debts into the same interest rate as your home loan. The interest savings may be thousands of dollars each year!
The key here is to try and keep your repayments the same. That way you’re not extending the term of debts outside of your home loan, but with lower interest charges you can pay these debts off quicker.
2. Review your repayments
Make additional repayments
By putting in some extra money into your home loan, the interest you pay will be reduced. This could result in tens of thousands saved on interest repayments over the life of your loan. Make sure you check your home loan contract to see if there any limits on the amount of additional repayments you can make.
Make principal & interest repayments
Structure your loan repayments to be Principal and Interest (not interest only). This will ensure you’re paying down the principal portion of your home loan right from the start and minimising the amount of interest you have to pay.
Pay fortnightly, not monthly
Change your repayment frequency to fortnightly, there are more fortnights in a year compared to the number of months which means more opportunity for you to pay more off your home loan.
3. Review your current home loan with a Lending Specialist
Taking time to review your current home loan may get you a better deal. A professional lending specialist will review your current home loan for you, provide options, and help you with a home loan refinance if that is the best option for you.
At this time you can also look at what features you need, and make sure you are only paying for those that suit you.
4. Consider an off-set account
Off-set accounts are a transactional account linked to your home loan. The balance in the off-set account is used to “off-set” the principal amount of your home loan thus lowering the amount of interest charged each month. If you’re able to keep a substantial amount in your off-set, you could save thousands off your home loan.
You have a 100% off-set account attached to your home loan. Your home loan balance is $400,000 with $20,000 in your off-set account. You will only be charged interest on $380,000 because 100% of the off-set balance is used to offset your principal.
To help you with budgeting or investing, a lending specialist can help you set up multiple loan splits including multiple off-set splits if that suits your financial goals.
With our busy modern lives we often overlook simple ways to save money. Making your home loan work smarter can speed up your goal to being debt free, or even help pay for the next family holiday!
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.