Ultimately – no-one wants a home loan, you want a home – right? Here’s 8 simple tips on how to own yours sooner.
1. If you don’t have an offset, pay fortnightly instead of monthly
Why? It’s simple. Your bank will give you a monthly repayment. For ease, let’s say that’s $1,500 per month. If you choose instead to pay $750 per fortnight – you make an extra payment per year.
12 months x $1,500 = $18,000
26 fortnights x $750 = $19,500 (that’s because there aren’t 2 fortnights per month as we commonly mistakenly believe)
Also, as you’re paying the money into your mortgage earlier, you’re saving on the interest you would have paid (as it’s calculated daily) waiting til the end of the month. Note – some banks will calculate your automatic fortnightly repayment in a way that doesn’t give you that extra payment per year, you can go around this by manually setting your repayment at half your monthly repayment (or a little bit more – see point 2) manually.
2. Pay more than you need to.
This one’s a bit of a no brainer, but something we recommend on all owner occupied debt that isn’t going to be an investment property in the future. If your repayment is $1,769.34 per month – can you pay $1,800? Could you pay $1,850 or even $2,000? Round it up, even if just by a bit.
AND
If your interest rate is variable and it drops – don’t drop your repayment amount. You were already paying that much, just keep it the same.
AMP have a super easy calculator which can help you work out potential savings: https://www.amp.com.au/calculators/rapid_pay_calculator/rapid_pay.htm#top1
(Note if you want to retain the most potential tax deductibility of your debt, ie: if you may potentially rent out the property in the future, we recommend you check with your accountant and use an offset – not make extra payments in and redraw them).
3. Consolidate your debt.
If you have credit card, personal loan, store card, interest free debt that’s on a higher interest rate than your mortgage, either pay that down or off first (remembering our tips on credit cards here: https://uploans.com.au/blog/2017/03/18/credit-cards-evil-or-not/) before you pay extra into your mortgage. Get rid of that high interest debt first, OR, chat with your broker about whether it’s possible to consolidate any of it.
4. Have an offset
We’ve already done a quick video on this here – it involves a frog and a pig (sadly not real ones) – go ahead and take 2 minutes to watch this one: https://uploans.com.au/blog/2015/06/22/why-would-you-consider-an-offset-account/
Bear in mind however that most of the banks do charge a fairly hefty annual fee for the privilege of an offset, so check in with your broker to do the sums to see if it’s worth it.
5. Make one-off larger payments off your home loan.
In addition to increasing your ongoing repayments, you can also put in lump sum payments from say your tax returns. These have a dramatic impact over the life of a loan.
6. Stay on your rate
Stick with a broker who will continue to reassess your rate with your current bank and the best overall product in the market for you. Remember that while the rate you start on with a bank might be all well and good, typically the rates bank offer new clients and the rate they have you on often widen – a great broker will keep onto this with regular reviews for you.
7. Cut one or two non essentials from your life and put that in your mortgage
Got a Netflix subscription? Maybe Mum and Dad could go up to the multi subscription level on theirs for a couple of bucks extra a month and you could share their log in?
Love take away coffee or buying lunch at work? If you cut back by just 3 days a week (or 4 or 5!) just think what that could be going into your mortgage?
Smoker? Not only does it make things like loan protection insurance more expensive, but oh yeah – it kills you, and can help you superspeed your mortgage repayments if you cut back or even better, give up.
8. Always make your minimum repayments on time for everything
A couple of days late with your credit card repayment? Overdrawn your savings account a few times? Missed your mortgage repayment once and then caught up? You have no idea how much this can impact until you try to go for a home loan or try to refinance. Every minimum repayment on time, all the time needs to be your mantra.
Here’s to owning your home sooner!
– Kirsty