How to get ahead on your home loan in 2020
All homeowners envision the day they make the final payment on their home loans. That feeling of complete mortgage freedom is something we can only imagine is an incredible feeling. Now we’re getting stuck into 2020 and we have interest rates at a record low, it’s a perfect time to get ahead on your loan repayments and inch a bit closer to that freedom.
The problem most people have is adjusting their mortgage repayments and only paying off the minimum each month. With dropping interest rates last year, while it may be nice to see the extra money in your bank account each month, keeping your repayments the same as what they were previously can mean saving in interest and time off your loan term.
For example – if your loan repayments last year dropped $25 each month because of a lower interest rate, and you kept your loan repayment the exact same amount instead of pocketing the extra month, you would have paid off an extra $300 over the year without needing to account for the extra cost.
We have a few more hacks to help you get ahead on your mortgage:
Repay more often
If you switch your repayments from monthly to fortnightly by halving the minimum monthly amount, you’ll squeeze in an extra month payment each year! If your mortgage repayments are $2000 a month, and you instead pay $1000 each fortnight, by the end of the year you would have paid $26k instead of $24k – all without having to think too much about it!
Lump sum when you can
Got a bonus at work? Amazing! Put it straight into your home loan. As your interest is calculated daily, whenever you get the chance to pay off a quick lump amount on top of your minimum repayments, you’ll decrease the amount owed and the associated calculated interest amount.
Be smart about saving
Does your home loan product have an offset account as a feature? If not, you may want to look for one that does. By having an offset account and using it for your savings, any amount you put in will offset the remaining balance on your loan. You only need to pay the interest on the difference, which can amount to a fair bit of saving over time!
One way to pay off your home loan faster, is to increase your income and use that extra cash towards extra repayments. Now, this option won’t be feasible for everyone – particularly those with children. Though if you have a spare room in your home and the option to, renting it out to another person is a great way to increase your income and input more money into your home loan. You can even save money on bills by splitting them with your new tenant!
Make a yearly health check a priority!
With interest rates constantly changing (and lately in your favour), it is essential to not set and forget your home loan rate. A mortgage broker can do the leg work and help you shop around for a better product for your situation. If you’re saving on the minimum amount then you can put any extra cash straight into your loan, and get it paid off in no time!