Our number one tip for all our customer's when they take out their first home loan is to pay it off as quickly as possible.
In this article we take you through a scenario to demonstrate why making extra, higher and/or additional repayments on your home loan can seriously benefit you in the long run.
You have a $400k mortgage (interest charged at 4.20% p.a)
1. IF you pay your mortgage back over 30 YEARS - your monthly repayments are approx. $1,956.07 and after your 163rd repayment you start paying more off the principle loan amount each month than what you're paying in interest.
Vs. paying it off quicker...
How can you pay off your home loan quicker?
In the scenario above we see the difference that paying just over an extra $500 per month cuts 10 years off of the time taken to repay the loan. Even if adding an addition $500 on to your home loan repayment is too much, just do what you can afford. Every extra contribution to paying off your mortgage will, in the long run, help you save money.
You could also consider making fortnightly or weekly repayments instead of monthly.
By making fortnightly repayments you'll pay half of your monthly repayments each fortnight. Since there are 26 fortnights every year, this is equivalent to making an extra month's payment each year. You'll build equity in your home quicker, plus pay off your loan sooner and save on interest.
2. Make extra lump sum payments
Making extra lump sum payments toward your home loan, especially in the early years, can have a huge impact on how much your total home loan repayments will be and how long it will take you to own your property outright.
3. Use an offset account
Another thing you may wish to consider it using a mortgage offset account. This allows you to offset (reduce) the amount of interest charged on your home loan by letting you pay down the principal loan amount with your savings.
4. Review your home loan to make sure you are still using a suitable product and competitive interest rate!
When it comes to finance, like anything else in life, things are constantly changing. Whether it be changes to your personal circumstances, current interest rates or products on offer, it is important to make sure that your home loan always keeps up with these changes.
At the moment interest rates in Australia are at a historic low. To speak to a mortgage specialist about your current or proposed home loan solution send us an email today. Alternatively, feel free to contact our head offices on 1300 663 943 or make an enquiry via our website.
Thanks for reading guys!
iconic home loans
The information provided here is general advice only, and your personal circumstances have not been taken into consideration in the preparation of this information. You should seek independent financial advice before making any decisions in relation to your personal finances. Please be aware that finance availability is subject to application meeting lending criteria, and all finance approvals are at the discretion of the lender. The interest rates and loan amounts used are for explanatory purposes only and are not a reflection of the current interest rates available. Monthly repayments are calculated using the loan amount, interest rate and loan term, and they are a guide only.