Fast track your home loan

With interest rates on the rise, now is the time to look at ways to fast track your mortgage. After all, the sooner you pay off your mortgage, the less you will pay in interest. That’s probably why nine out of ten Australian mortgage holders told a recent finder.com.au survey that they try to pay back their mortgage ahead of time.ⁱ So what are the ways you can fast track your mortgage and minimise your interest payments?

Increase your repayments

The most popular strategy is to make extra payments. Rather than paying your designated monthly repayment, why not pay more? Not only does this reduce your interest charges but if rates should rise you will be able to absorb the increase. You can also make extra payments if you get a windfall or a bonus at work. But if you have chosen a fixed home loan, you may find you can’t make extra payments, so check with your lender. More frequent payments are also a good strategy. Instead of paying your mortgage off monthly, pay half the monthly amount each fortnight. After all, there are only 12 months in a year, but 26 fortnights, so you effectively end up paying an extra month each year. Most home loans are structured so you pay mostly interest in the first five to eight years without making any inroads into the principal. If you can manage to pay some principal off too during that period, then you can cut the interest you’ll pay on an average 25-year loan.

Consider an offset account

An offset account can also prove useful. With your salary going into your mortgage account, the principal will drop and that means you will pay less interest. For instance, if you had a 100 per cent offset account with $30,000, on a home loan of $400,000, you would see interest only calculated on a balance of $370,000 instead of $400,000. If you’re looking at a honeymoon rate on a new home loan, do your homework and make sure that the rate you pay at the end of the honeymoon period is not substantially higher. If that is the case, it could eliminate any gains you may have made in that first year of lower rates. But be aware that switching to a cheaper loan might incur a high exit fee. It’s always a good idea to review your home loan annually to make sure it’s still working for you. For instance, do you really need all the bells and whistles that are on offer? Often, you’ll be paying for these extras through higher interest rates.

Negotiate a better deal

If you are unhappy with your current rates, then talk with your existing lender to see if you can negotiate a better deal. But make sure you do your homework first and check out what other lenders are offering so that you are in a better negotiating position with your current lender. Most lenders would rather hold on to existing clients than lose them to a competitor. When negotiating your home loan, you might be able to access a package from the lender giving you some beneficial extras such as discounted home insurance, fee-free credit cards or fee-free transaction accounts. Or you might be able to waive the fees associated with the loan. When you initially take out a loan, consider making your payment before the due date. That way you are always ahead of the game. With interest rates expected to rise in 2017, this may be a good time to consider fixing part of your loan to cushion yourself against future rises. If you want to make sure that you are doing all you can to minimise interest payments on your loan and fast-track your mortgage, call us to discuss the financial strategies that might work best for you.

Checklist

• Make extra repayments

• Pay more frequently

• Use an offset account

• Review your mortgage annually

i ‘Aussies go above and beyond to pay down home loan sooner’, Nov 2016, finder.com.au

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