A home loan is one of the largest financial commitments you will ever make, as such, it is crucial to secure ways to save money where possible. Below we have put together the 7 best ways that will enable you to save money on your home loan, meaning you can own your home sooner.
Review Your Home Loan Regularly
Understandably the thought of refinancing a home may appear to be a hassle, however, it could help you to save thousands on your mortgage. This a great way for a credit adviser/broker to help save you time and money.
Regardless of whether you are happy with your current home loan repayments, it is wise to ensure that you review your home loan regularly, as changes in the market can lead to preferential interest rates being offered by lenders to entice new customers. Even a small interest rate reduction could help you save a worthwhile amount over time, and you can even further increase your savings by opting to maintain our current repayment amount, regardless of securing a lower interest rate. Having said that, if looking to refinance other aspects such as rate, functionality of how you live with the loan and whether you are able to service the debt with a different lender and different set of policies will need to be considered. Our sister company Moneyclip Home Loans powered by Smartline can assist.
Whilst locking in a better interest rate is a great way to review your home loan, there are also other revisions that you can make to your home loan when undertaking a home loan review. These include:
- Adding additional home loan features / Removing unused home loan features;
- Amending the frequency of your repayments;
- Reviewing whether you are happy with the service you are receiving from your current lender;
- Transitioning from/to a fixed interest rate from a variable interest rate; and/or
- Deciding whether you would like to utilise any equity that you may have in your home loan.
Make Additional Repayments
By making additional repayments to your home loan, you are effectively paying down your loan more quickly; which means you could pay less interest overall for your home loan.
If you are unsure that you will be able to commit to making overpayments to your loan each month, the good news is that additional repayments do not need to be consistent to be effective. Making additional repayments is completely flexible and means that you can make them when you have surplus funds, such as a tax refund, work bonus or inheritance, and not make them if you don’t. They simply allow you to pay down your home loan a little sooner. A great way to address this is if whenever you get a pay increase, you increase your repayments by the same percentage increase as your pay.
It is important however to note that not all lenders allow you to make additional repayments. Whilst there are usually no restrictions for making additional repayments on a variable interest rate home loan, there could be for those on a fixed rate home loan. If you are unsure, contact your broker or Moneyclip Home Loans to determine whether it is possible prior to making any additional repayments. Part of this advice will be whether to pay directly into a home loan or whether to park the funds in an offset account if applicable.
Establish An Offset Account
Establishing an offset account alongside your home loan can help you save money in the long run on your repayments. The account operates similar to a transactional savings account that is linked to your home loan balance. Any money that you have in the offset account is ‘deducted’ from your home loan’s balance, effectively reducing the amount of money you’re charged interest on.
For example: if you have a home loan balance of $500,000, and an offset account balance of $50,000. When you make your home loan repayments, you will only be charged interest on $450,000 ($500,000 – $50,000).
With the saved interest, you will accelerate the repayment of your home loan or can utilise the savings to make other strategic investments. You may have also heard about redraw facilities, which work similarly to offset accounts, however there are some key fundamental differences. To determine whether this is suitable for you, please speak with your broker prior to opening any accounts.
Consider Fixing Your Interest Rate
Whilst there are many perks to having a variable rate home loan, when interest rates increase like they have recently, then your home loan repayments could also increase.
To minimise the impact of any boost in interest rates, you could look to switch to a fixed interest rate mortgage. The perk of a fixed rate loan is that you have the ability to lock-in a good offer for between 1-5 years, regardless of whether interest rates rise or fall, you will remain paying the same fixed rate for the length of your fixed loan term. In using a fixed term, you may lose some functionalities such as offset. Fixed rates do not suit everyone, and its timing can have a positive or detrimental impact. To determine whether a fixed rate is appropriate for you, speak with Moneyclip Home Loans today.
Ensure The Fees You Are Paying Are Not Too High
When securing your home loan, it is likely that there will have been a fee associated with it. However, it is important to ensure that you are not paying fees over and above what you need to. Your broker can seek any specials such as rebates where applicable and appropriate for you.
By reviewing your home loan regularly, you can check that you are not paying for features within your mortgage that you aren’t using, such as an offset account. Whilst these features can be effective when built into your home loan package, they are only helpful if you are using them; otherwise, you could be paying monthly/annual fees for something which you aren’t gaining the benefit from.
There are also some lenders who may offer zero-fee / low-fee home loans (Basic or No Frills), so it is worthwhile to review your current loan to see whether any of these benefits can help you save money on your home loan.
Ask Yourself Whether You Can Increase Your Repayment Amount?
When undertaking a review of your home loan, it is worthwhile considering whether you have room in your budget to allow you to increase the amount your pay off of your home loan on a monthly basis.
Perhaps it’s a good opportunity for you to review your spending and evaluate whether you have regular financial commitments that you maybe aren’t using. For example, if you aren’t really using that Netflix subscription, it might be time to consider cancelling. Another common ongoing cost could be revaluating your gym membership, perhaps you could look to amend your membership level or again see if there is a cheaper alternative which may suit your needs better.
There could have also been changes to your financial situation since you started repaying your home loan. Perhaps you have received a well-earned promotion and pay rise, or maybe your children have grown up and left home. These changes to your personal circumstances could mean that you have surplus income which you could consider putting towards your home loan. It is, however, important to ensure that you are being realistic about what you can and cannot afford to repay, speak to the Moneyclip team today to discuss what changes in your personal circumstances could mean for your home loan.
Make More Frequent Repayments
If you are currently making one repayment per month, you could consider increasing the frequency of your payments by instead making a repayment each fortnight.
By making fortnightly repayments, you will end up making one extra month’s repayment each year. This means that you will save on interest as you will be paying down your loan more quickly. With just one additional month’s payment, you aren’t going to be making a huge saving, but if you were to do this for a few years, then it will add up.
If you would like to speak to someone about your personal circumstances and what specific options you have to save money on your home loan, don’t hesitate to reach out to us for a chat today on myadviser@moneyclip.com.au or call us on 02 9299 2292.
We will also be happy to refer you to our home loans team at Moneyclip Home Loans, for a complimentary home loan review.