Purchasing a home is a pretty big deal and probably one of the most expensive decisions you’ve made, so finding ways to minimise the interest paid on your home loan can lead to reduced interest payments and substantial savings in the long run. Here are a few tips that have helped our clients save thousands, paying less interest over the course of their loan:
There’s a chance your broker can bag you a lower interest rate deal, better than your current one. By comparing different options, you can identify potential savings. Refinancing not only reduces your interest rate but can also lead to substantial savings over the life of the loan.
2. Extra repayments:
Making extra repayments is a powerful strategy to reduce the interest on your home loan. By paying more than the minimum monthly repayment, you effectively reduce the overall interest paid over the loan term. Not only does this save you money, but it also accelerates your journey towards loan repayment. Making additional repayments shortens the loan term, allowing you to become debt-free sooner. To understand the potential interest savings, utilise online mortgage calculators. These tools provide valuable insights into how much you can save by making extra repayments, allowing you to make informed financial decisions.
3. Change your payment frequency:
Changing your payment frequency can have a significant impact on reducing the interest on your home loan. Consider switching from monthly to fortnightly payments. By making twenty-six payments per year, which is equivalent to thirteen monthly payments, you can expedite your loan repayment process. This strategy allows you to pay off the loan sooner, saving you both time and money. With more frequent payments, the overall interest paid decreases, putting you on a faster track towards owning your home outright. Embracing this change in payment frequency can make a substantial difference in your financial journey and help you achieve your goals sooner.
4. Shorter loan term:
Shorter loan terms often come with lower interest rates, making them an attractive option. If your financial situation allows for higher monthly repayments, opting for a shorter loan term can be beneficial. While the monthly payments may be higher, you will save money on interest in the long term. By paying off your loan sooner, you reduce the overall interest paid and gain financial freedom more quickly. Carefully consider your budget and future financial goals when deciding on the loan term, as choosing a shorter term can lead to substantial interest savings over time.
5. Offset account:
An offset account is a savings account that is linked to your home loan. The balance you have in your offset account is subtracted from the outstanding loan balance when calculating interest. By doing so, the amount of interest you need to pay overtime is reduced. Essentially, the money in your offset account acts as a temporary reduction in your loan balance, resulting in lower interest charges. This can lead to considerable savings over the life of your loan. By leveraging an offset account effectively, you can improve your financial situation and minimise the amount of interest you pay, ultimately helping you pay off your loan faster.
6. Lump-sum payments:
Whenever you receive unexpected windfalls or bonus payments, it’s wise to consider allocating a portion of those funds towards your loan. By applying these additional funds directly to the principal amount, you can decrease the outstanding balance. As a result, the interest charged over the lifespan of the loan is reduced.
Reducing the interest paid on your home loan is a smart financial move that can save you thousands of dollars in the long run. Consulting with a financial planner or mortgage broker to assess which strategies are best suited to your individual circumstances.
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Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent. Content developed in partnership with IFPA.
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