The term mortgage is derived from an old French word meaning ‘death pledge’. No wonder then people feel chained to their home loan for the rest of their lives. Clearing it early seems like a pipe dream.
Obtaining a home loan can be a daunting process requiring a lot of preparation. For many, it’s the most costly financial decision they’ll ever make.
That’s why financial experts recommend people review their position regularly and spend more time getting to know their home loan. In most cases understanding your financial position can mean a better deal.
With Australians signing up to larger home loans and the cost of living on the rise, choosing the right approach to repayments is particularly challenging. Not maximising this area of a home loan can result in throwing away tens of thousands of dollars.
Home loans have a long-term horizon. So playing the long game to get the upper hand will work towards bringing the repayment horizon closer.
Getting the best from your home loan is simply about managing the cost of time. It’s easier than you think and can save some serious money.
Here are some tips for getting the most out of your home loan.
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Avoid repayment creep
Late and missed repayments can cost you dearly, including a range of additional financial penalties that may be included in the terms and conditions of your home loan.
Be aware and plan for your financial commitments. If your circumstances change, start a conversation with your lender at the earliest.
A blemished record can significantly reduce the flexibility and finance options you may want to or need to access in the future.
‘Gold coin donation’
Additional lump sum payments can put a serious dent in your home loan, saving time and money.
For example, at current record-low interest rates an additional payment of $10 000 could wipe several years from an average home loan, saving tens of thousands of dollars.
A likely source of these amounts could be tax returns, employment bonuses or even saving your gold coins for a year.
It’s tempting to spend this money on oneself in the short-term, but the longer-term reward of financial freedom is irresistible.
A good discipline is to budget where and when these amounts will be available and stick to the plan.
Talk turkey with lenders
There’s never been a better time to haggle for a new home loan deal. Don’t settle for second-best.
With interest rates at record lows, doing some homework as part of your financial review means refinancing your home could be a strong option to improve your position, saving time and money.
Competition for new business is strong, so refinancing is not as drastic as it sounds with property finance viewed as quite portable in the marketplace.
This includes your existing lender who is just as keen to retain your business. Do some research, tell them what you’ve seen and ask for a better deal. Especially if your circumstances have improved such as disposable income, as a better rate whilst maintaining the same repayments or better can save a lot of time and money.
Repayment frequency
Increasing the regularity of your repayments is an effective way of saving money on your home loan.
Extra repayments in between your scheduled repayments also provide double the benefit, as these amounts will typically go straight on to the principal.
Consequently, the size of your home loan reduces and therefore the accrued interest.
Rates versus features
We’ve all been groomed to focus on the lowest possible interest rate when assessing the merit of the many different home loan products available.
Simply choosing the lowest interest could cost you in the long run. It’s important to be mindful of the great features some home loans offer, that when called upon could save you a lot of time and money.
A key feature that ensures you are getting the most from your home loan is an interest-offset account.
A 100% interest-offset account can significantly reduce your interest expense, saving you tens of thousands of dollars over the life of your home loan.
When you borrow to buy a home, the bank will charge you interest on the total amount of the loan balance owing. Interest is calculated daily and charged monthly.
A 100% interest-offset account uses the balance of your offset account to reduce the total home loan balance. This means you are only charged interest on your home loan balance minus the balance of your offset account.
The more money you keep in your offset account and the longer you keep it there, the less interest you pay on your home loan. Because home loan interest is calculated against your loan balance daily, every dollar you have in your offset account saves you interest each day it’s there.
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Summary
In her best-selling book The Happiness Project, Gretchen Rubin said ‘the days are long, but the years are short.’
The same sentiment applies to getting the best from a home loan.
With the right mindset, the right advice and proper follow-through there are major savings for those who realise the significance of financial freedom.
True happiness is knocking a decade off your home loan and saving tens of thousands of dollars.
When’s your next home loan review?
The busy pace of everyday life means it can be difficult to know if you’re getting the best deal from your lender. When it comes to home loans, there’s no such thing as one size fits all.
It pays to talk to people that want to hear your story. Take advantage of our free, no obligation home loan review with one of our experienced, and accredited finance professionals by organising an appointment today.
That’s right. In a refreshing twist you’ll actually talk to a real person.
It’s just one of the many features and benefits included in a tailored home loan solution from Loan Avenue – affordable home loan solutions for everyday Australians like you.
Let us show you. To make an appointment call 1300 56 26 28 or leave a message here.
