The average size of a home loan in Australia is almost $400,000, according to the Australian Bureau of Statistics. Most people will repay their loans over 30 years, during which time they’ll be charged a whopping $319,820.45 in home loan interest (assuming a rate of 4.5 per cent).
If the average home owner were to repay in 25 years instead they could save over $60,000. With that in mind, we’ve put together a list of three useful tips that will help you pay less interest and be debt-free sooner.
1. Use a 100 per cent offset account
If you’ve got savings leftover after buying a home, a 100 per cent offset account could be perfect for you. This loan feature allows you to link an everyday savings account to your variable rate home loan balance.
Your interest repayments are then calculated using your loan balance minus the amount in your linked savings account. If you keep money in that savings account, you’ll pay less interest on your loan, meaning you could pay it off quicker and save thousands of dollars.
2. Try a split interest loan
There are three ways you can choose to calculate interest on a new home loan. A variable rate goes up and down as the market does, meaning if rates go up, you’ll pay more and vice-versa. You can usually make extra repayments without incurring fees.
A fixed rate stays the same for a select usually 3 to 5 years, protecting you from any increases in market interest rates. However, you may be charged fees if you make extra repayments.
Get the best of both worlds by fixing a portion of your loan and leaving the rest on a variable rate. The fixed portion of your loan will protect you if market interest rates rise, while the variable portion will allow you to make extra repayments without incurring hefty fees.
3. Make fortnightly repayments
You can repay your loan monthly or fortnightly. Fortnightly repayments are simply half the monthly amount every two weeks, and yet if you choose this option you could save months or years off your home loan. Why?
There are 26 fortnights in a year, meaning that squeeze an extra month of repayments into every year. You’ll pay less interest and settle your loan sooner.
If you’d like to fine tune your home loan to make repayments easier, contact our team today!