Dreams are dashing but one that seems consistent with Australians is the dream of owning their own home. With some hard saving, a plan and the right personal circumstance it’s an achievable dream. But you shouldn’t jump in, eyes closed, or your home loan repayments could turn into your personal nightmare.
Luckily there are plenty of tools available online that lift the screen and reveal what your home loan repayments are likely to look like before you sign on the dotted line.
By doing your own calculations at home you can arm yourself with all the information you need to know about how much you can afford to borrow, how much interest you are going to incur, the length of loans available and what you will be forking out each month.
Using the calculator, repayments can be altered by switching between a selection of repayment frequencies – in some cases, increasing repayments from monthly to fortnightly repayments is often the best approach for shaving interest and time from a home loan. But this will entirely depend on your lender.
If your home loan lender allows it – and most do – consider choosing fortnightly rather than monthly repayments. By increasing the repayment frequency, you can significantly slash the interest liability attached to a 25-year home loan, and shave years off its term.
If you’re wondering how this works – it’s pretty simple. Paying fortnightly instalments is like making 13 months worth of repayments annually. The additional month could make a big difference over the term of the home loan, while you probably won’t find it any more financially onerous than making monthly repayments. Again, this will depend on how your lender calculates interest, so it’s certainly worth asking.
Lump sum payments
Another way to make a serious dent in your home loan is to pay lump sums such as tax return payments, a small inheritance, a lottery win, or a salary bonus directly into the home loan. This works on the basis that the lump sum immediately reduces the home loan amount that the interest is calculated against.
The beauty of a lump sum payment is that you won’t miss what you never had, while this strategy will provide you with an excellent tax-free return that no other investment strategy can compete with. Not all home loans allow borrowers to make lump sum payments, so check this with your lender or compare home loan features online at RateCity.
If you’re worried a lump sum payment will tie up your money, don’t forget most home loans have redraw facilities, which provide access to your funds should the need arise.
Using RateCity’s home loan calculator, repayments can be tweaked until you find the best match for your circumstances – it’s literally a key stroke away.