We’re calling it. Paying off the home loan sooner is now the number one priority for Australian households.
Owning your home sooner is simply about managing the cost of time. One of the best ways to do this is by linking a 100% Offset Account to your home loan and using it as your everyday banking account, instead of using a standard savings account.
The home loan uses the balance of the offset account to reduce your loan balance. That is, you are charged interest on your home loan balance minus the amount in your offset account.
The more money you keep in the 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 everyday it’s there.
An offset account can save hundreds of thousands of dollars over the life of a home loan.
If opening your monthly home loan statement still gives that sinking feeling, there are some other things people can do.
Adding extra payments to your home loan can significantly shorten the life of the mortgage. If you’ve got a standard 25-30 year mortgage, a trick is to treat it as if it were a 15 year mortgage.
People are quite often surprised to learn that half the loan term does not mean double the payments.
15 year mortgages are surprisingly affordable, but do have the added compromise of being locked-in to a higher repayment amount.
However, record low interest rates and lending competition means banks are currently offering some great deals to refinance owner-occupied properties. So refinancing to a shorter home loan is another option to save time and money.
For some people, shorter loan terms are not an option because they prefer maximum flexibility. This means keeping a 30 year mortgage and treating it as if it were a 15 year term, providing a financial buffer should peoples’ situation change in the future.
Maintaining your current repayment level on a 30 year home loan that has been refinanced at lower interest rates is also a good option for paying off your home sooner whilst maintaining flexibility.
We have a range of home loan and finance calculators that can be accessed online at peoples’ convenience.
If after playing around with the numbers, you think it might be time for a home loan check-up, give us a call to arrange a no obligation review of your financial position.
We look forward to hearing from you.
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