Mortgages are funny things. When you get approval from the bank, you’re so happy and relieved that you often forget that your home loan needs a regular check-up.
Mortgages can seem complicated with everything from interest rate, term of the loan, repayment amount and frequency etc impacting on how much you pay.
In this blog post, we have simplified the process down to the three elements we believe will help you take control of your home loan, so you feel a bit more in charge of the process.
1. RE-NEGOTIATE WITH YOUR BANK EVERY SIX MONTHS
If you see your banks competitors offering a better rate – use this information as a negotiating tactic to get a better interest rate. I know you may feel uncomfortable asking for this however this so think about it this way – a .5% difference on a $400,000 loan is $2,000; how much overtime, extra work etc would you have to do to have $2,000 (after tax) in your hand…. Feeling a bit more comfortable asking the bank now??
It’s absolutely worthwhile ringing up your bank and pushing for a better rate. Use comparison websites to check whether your home loan rate is competitive and know what the competition is offering.
2. MAKE PAYMENTS MORE OFTEN
Most of us know this by now – it’s straightforward maths – switch your payment from monthly to fortnightly. This will have about the same impact on your budget as one monthly repayment, but because there are 52 weeks in a year, fortnightly repayments will result in 13 repayments a year instead of 12. You’ll be making an entire extra repayment every year without having to scrounge around for the extra money.
For example; if your mortgage was $200,000 over 30 years at 5% interest, making fortnightly repayments would save you $34,328 in interest and allow you to pay off the loan up to five years early.
3. USE A 100% OFFSET ACCOUNT
Most banks will offer to attach an offset account to your loan account – but make sure it’s a 100% offset account. An offset account means that any money sitting in this account will reduce the amount of interest you pay on your loan. Getting all your salary or wages paid into the offset account is the easiest way to maximise your offset accounts effectiveness.
BONUS TIP – SIMPLY INCREASE YOUR REPAYMENTS
Paying more than required is the simplest way to pay off your home faster. It’s also the most obvious and overlooked strategy. Just adding $50 per week can save up to four years on a typical loan.
I hope this information has been helpful for your consideration of building your new home. Feel free to reply to this email with any questions you may have or to discuss your specific situation in more detail.
I look forward to hearing from you soon!