Interest rates are historically low, so how can you best take advantage of them and really make a dent in your home loan? Here are five things you can try.
Use an offset account
An offset account is a fully transactional bank account that is linked to your home loan. For every dollar that is sitting in your offset account, that is one dollar less you pay interest on. So if you owe $300,000 on your home loan and have $10,000 sitting in a linked offset account, you will only pay interest on $290,000. This means more of your monthly payment goes to paying down the principal, therefore you pay your loan off sooner.
Look for a better interest rate
Banks are always offering special deals and there may be a better offer than the one you are on now. Your own bank may even offer you a discount if you ask. Sometimes the fees involved may not be worth changing too often but it is a good idea to keep an eye on what is around. Contacting a mortgage broker can be a good way finding out what your options are.
Pay extra
If you can, pay a little extra off your loan. Every little bit counts. Even an extra $20 per week can shave years off your home loan. If you set up your repayments to be a little more than the minimum, or set up recurring transfers from your savings account with the little extra, soon you won’t even notice.
Put your savings into your offset or home loan
If you are saving up for something big like a holiday or renovations, why not use your home loan to park those savings in. Not only will you have the cash ready to do what you want without relying on a credit card, you will have saved yourself a nice chunk of interest in the process.
Keep track of your finances.
Yes this is the boring one that no one wants to think about, but it can make a world of difference. Budgeting and keeping track of your finances never seems like fun but it can help identify what you are spending on things that don’t bring value to you, and also show where you might have some room to make extra payments on your home loan. That’s not to say you should stop having a daily coffee if it is something you really love, but maybe you are spending significant amounts on lunches that you don’t really like and you could instead bring food from home that you would enjoy more anyway. You can then use the money that you save on the things that don’t bring you joy for something more beneficial to you, like paying off your home loan.
These are simple tactics that can have a big impact on your bottom line.