Simple ways to save Interest on your Home Loan
A question asked by many people is “how can I save interest on my home loan” or “how can I pay off my loan quicker?” Here are a few simple ways you can save interest on your home loan.
Make weekly or fortnightly rather than monthly
Making your repayments weekly or fortnightly rather than monthly will save you in interest repayments especially over the long term of your loan. This is because you reduce your loan balance more often and interest accrues daily but is charged monthly.
100% offset accounts are a great way to make savings on your home loan. 100% offset accounts mean that any money you have in your bank account is saving you interest on your home loan.
An average balance of $5000 over the year on a $400000 loan with an interest rate of 4.5%pa over a 30 year term would save approximately $14000 in interest over the term of the loan. This means you would pay your loan of quicker and pay the bank less interest.
Make lump sum or extra repayments
Any extra repayments you make on your loan above the minimum payment come directly off the principle. Any repayments off the principle reduce the amount of time you pay your loan over which also means you reduce the amount of interest charged on your loan.
Divide your monthly repayment by 2 and pay that amount fortnightly
There are 12 months in a year or 26 fortnights, when you simply adjust your repayments to ‘fortnightly’ the bank will work out the repayments over the year to ensure your term is not extended, yes it will reduce your interest slightly but it will not be as effective as if you were to divide your monthly repayment by 2 and make that payment fortnightly. This is because you will also be make extra repayments off the principle if you divided the monthly payment by 2.
On a $400000 loan over 30 years at 4.5%pa the monthly repayment would be $2030, interest payable over 30 years approximately $330178, the fortnightly repayment would be approximately $932 and interest repayments over the 30 years would be $328617 so a saving of almost $2000 over 30 years. But, if you were to pay $1015 per fortnight you would reduce the term to just over 25 years and pay approximately $270575 in interest over that term. A massive saving of $59603!
If you want to save interest on your home loan and make sure you have the best deal possible please call me on 0447277321 or email Tara.Williams@mortgagechoice.com.au