Options for paying off your home loan sooner

Options for paying off your home loan sooner

We all want to slash years and money off our home loans, while also avoiding a significant whack in additional interest repayments. The good news is that there are many home loans offering the flexibility to make regular, additional repayments and/or lump sum payments to help you reduce your home loan faster.

 

Apart from extra and lump sum payments, features such as ‘redraw’ facilities and ‘mortgage offset accounts’ can shave years off the term of the mortgage and slash interest repayments. Likewise, ‘bundling’ a home loan with a credit card may also save time and money.

Redraw facilities

Making extra repayments into your home loan trims the interest you will pay over the term of the loan. However a ‘redraw’ facility gives you access to these additional payments should you hit a financial speed bump such as a medical condition or a job loss. The RateCity mortgage payments calculator lets you compare home loans with redraw facilities.

Mortgage offset accounts

A mortgage offset account is like a transaction account that is linked to your home loan. This enables the money in your transaction account to be offset against the balance of your home loan, so you only have to pay interest on the balance. For instance, if you have an outstanding balance on your mortgage of $200,000 and your offset account has $20,000 in it, you will only pay interest on $180,000 ($200,000 – $20,000). There are also tax benefits attached to mortgage offset accounts that you should discuss with your accountant.

‘Package’ loans

It’s possible to bundle a home loan, credit card and transaction account into a ‘package’ loan and save money. Not only will this deliver banking convenience, but customers can also potentially earn a discount on the interest rate attached to their home loan, while fees such as loan establishment fees and credit card account fees are often scrapped.

The rub with a package loan is the annual fee – usually a few hundred dollars.

Compare thousands of Australian home loan options by conducting a home loan comparison online. Use the home loan repayment calculator to crunch the numbers and find out how much you could potentially save.

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Learn more about home loans

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

Mortgage Calculator, Repayment Frequency

How often you wish to pay back your lender. 

Mortgage Calculator, Repayments

The money you pay back to your lender at regular intervals. 

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

Does each product always have the same rating?

No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:

  • Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
  • You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
  • You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

Mortgage Calculator, Loan Results

These are the loans that may be suitable, based on your pre-selected criteria.