Typical Australian home loans have terms of 20 to 30 years. When you start to consider the amount of time you need to fully repay your mortgage, it feels more like a prison sentence than a way to fulfill your dream of acquiring your own home. However, there are ways by which you can potentially slash years off your current loan.
Blogger: Warren Dworcan, managing director, Rate Detective Finance
Here are a few of them:
1. Make extra repayments. Majority of Australians take out variable rate loans. One of the reasons why this type of loan is ideal is that it allows you to make extra repayments on your loan. When you regularly put in more cash to your debts, you will be able to reduce the amount of time needed to repay it in full.
2. Consider using an offset/redraw account. Offset accounts and redraw facilities are two home loan features that allow you to use any extra income or savings to reduce the balance of your loan, thereby reducing your interest repayments. There are differences between the two but when used correctly both can cut years off your loan.
3. Pay more. When interest rates drop, you don't have to cut your repayments. One strategy you can take is to maintain your level of repayments even if rates fall. This then allows you to make bigger loan repayments without increasing the amount you spend every month.
4. Switch loans. Lenders are always looking to get new clients, so they constantly make their loan products more attractive than what competitors offer. This then works to your advantage since it creates better options for you. So always be on the look out for great deals and if you find one that is better than your current loan, consider switching to it. You can make a switch with the same lender, or switch to a new loan and a new lender altogether.
5. Split your repayments. Choosing fortnightly repayments over monthly also enables you to cut more off your debt. The reason for this is that there are 26 fortnights in a year, so you will essentially pay for 13 months instead of just 12 months with monthly repayments.
6. Choose loans carefully. Not all loans are created equal. It thus helps to work with a qualified mortgage broker so you can have several loan options at once. Having many options to choose from is ideal since it helps ensure that you will be able to get one that suits your needs.
Also remember to compare home loans using comparison rates. Comparison rates provide you with the true cost of the loan since it already factors in things such as the term of the loan, the interest rate plus the fees and charges.