At this time of year many Australians may still be nursing bruised credit cards and less concerned with getting ahead on their home loan. But cutting your home loan quickly can do more than just save you tens of thousands of dollars over the life of your loan.
Getting ahead on your home loan repayments provides peace of mind: a great buffer for when interest rates rise, and a kind of insurance policy if unexpected health or financial issues pop up.
Making a few relatively small changes can cut the interest cost of a typical mortgage by more than $200,000, according to wealth management firm Yellow Brick Road.
Executive chairman Mark Bouris says there’s no magic when it comes to saving money on your home loan.
“If there’s magic, it’s just in the simplicity of it,” he told News Ltd. “We always assume there’s some complex formula.”
The key, he says, is to keep it simple.
Small steps to big change
Small changes to your weekly spending can deliver huge long-term benefits. A recent study found that the average Australian household now spends $2000 a week on expenses, with mortgages and rent making up the biggest chunk. For example, a couple who stop spending $10 each a day on lunches at work will save $5000 a year – which equates to around $82,800 in interest and almost 9 years years off the life of a 25 year loan (based on a $250,000 home loan and paying a rate of 5.5 percent interest). Try using a budget, such as the federal government’s MoneySmart online tool to indentify areas you can save money.
Review your home loan
Latest research from the Australian Bureau of Statics shows that 184,318 borrowers refinanced their home loan in the year to January 2013. It’s little wonder that so many homeowners are making the change, with savings of up to $1500 each year to be had.
Whether or not you do review your home loan, there are plenty of ways to help slash the amount of interest you pay – here are three that you can start today.
Ramp up repayments
A recent survey from lender Rams revealed that 68 percent of first home buyers are making more than the minimum loan repayments in a bid to slash their home loan liabilities. In fact, by adding just $50 extra per month on top of the minimum repayment, it’s possible to strip $15,000 in additional interest from a $250,000 mortgage.
Talk to your lender
Use a free site like RateCity to compare home loans and then play the game. If you can prove to your lender that you’ve done your research and can show them more competitive rates – and that you’re prepared to walk – then they may be willing to match it. You have nothing to lose. If they say no then consider switching – you’ve already done the research!
Make it real
Use an online calculator, such as the one at RateCity, to work out how much interest you might save and the amount of time you could shave off your loan by tweaking one or more variables, such as the interest rate, loan term or making extra repayments.
Write it down and review it every six months because having targets that you can see are much easier to hit!
For more tips to slash your home loan visit RateCity.com.au or check out some of the top available rates below.