The new financial year is just around the corner, and national mortgage broking franchise – MoneyQuest, offers five tips to help home owners pay off their home loan sooner and pocket valuable savings on interest costs.
TIP 1 – ALIGN REPAYMENTS WITH PAY DAYS
Home loan repayments are typically calculated and paid monthly yet most home owners are paid fortnightly.
Michael Russell, Managing Director of MoneyQuest, said, “By halving monthly loan repayments and making fortnightly repayments, home buyers make the equivalent of 13 monthly repayments each year, not 12. The extra month’s installment makes all the difference helping to pay off the loan sooner and save on interest. Home owners who are paid weekly can enjoy the same benefits by dividing monthly repayments into four weekly payments.”
On a home loan of $400,000 with a 25-year term and an interest rate of 5.0% and no monthly fees, normal monthly repayments would be $2,338 or $28,056 over the course of a year.
By dividing that monthly repayment into two fortnightly repayments of $1,169, a home owner will pay $30,394 over 12 months, with the extra repayments cutting 3.5 years off the loan term, saving $48,616 in overall loan interest charges.
TIP 2 – USE A TAX REFUND TO PAY DOWN YOUR HOME LOAN
Using the loan example above, a home owner who deposits a $1,000 tax refund into their home loan can save $2,920 in interest. “Make it an annual habit to become mortgage-free even sooner,” said Michael Russell.
TIP 3 – SET A BUDGET AND STICK TO IT
Home owners who start the new financial year by setting a weekly budget and sticking to it, are better able to identify spare cash, which can be deposited straight into their home loan account. Most lenders and professional mortgage brokers offer simple budgeting tools.
Michael Russell, said, “While it’s always a good idea to maintain emergency savings equivalent to three months of living expenses, almost all variable rate home loans permit additional repayments to be withdrawn via fee-free redraw. So any surplus cash is not locked away if unexpected bills arise.”
TIP 4 – DON’T BE COMPLACENT
“Interest rates are at record lows and the mortgage market is extremely competitive, however home owners shouldn’t just assume they are getting a good deal” said Michael Russell. “Home owners have the potential to get ahead financially by speaking with a mortgage broker to check if they are paying more than necessary on their home loan. It can be worth renegotiating with a current lender or perhaps switching to a new loan to secure a lower rate.”
Again, using the above home loan as an example, a home owner who can trim just 0.25% from the loan rate can save up to $73,118 in total interest costs and be mortgage-free over four years sooner.
TIP 5 – AVOID THE TEMPTATION OF CREDIT CARDS AND PERSONAL LOANS
Michael Russell explained, “The term ‘mortgage stress’ is often misused and misunderstood. In almost all cases, mortgage stress is the result of home owners taking on too much high interest debt such as credit cards, store cards and personal loans. Home loan debt is rarely the problem.”
“It is important for home owners to be cautious about taking on too much high interest debt. However, a home loan can be a useful tool for debt consolidation, potentially allowing a borrower to achieve a significant reduction in the overall interest rate they are paying as well as lowering total monthly repayments. A mortgage broker can advise on exactly how much a home owner can save by consolidating debt this way,” concluded Michael Russell.
Established in 2007, MoneyQuest was founded with a clear goal – to make property ownership easy and rewarding for everyday Australians. MoneyQuest has over 50 offices across Australia helping thousands of families and investors build their financial future – from first home ownership right through to retirement. More information on www.moneyquest.com.au.