As well as keeping up with regular mortgage repayments, there are simple ways to reduce the amount of interest you pay on your home loan too. Here’s how.
1. Create a budget
This may seem like an obvious tip, but you would be surprised how many people haven’t documented their expenses on paper. With most payments now made electronically, it has become easier than ever before to spend beyond your means without even realising it.
As well as preparing a budget before taking out a mortgage, it’s useful to review your budget on a regular basis. Doing so will allow you to identify how you can either contribute more to your mortgage or save for new milestones such as a holiday, new car or school fees.
Top tip: If you have trouble controlling your spending, start withdrawing your weekly budget from the ATM. Seeing the money physically leave your wallet is a good way to stop yourself from making unnecessary purchases.
2. Set up automatic repayments
Making repayments as quickly as possible should be your priority, in order to reduce the amount of interest compounding daily on your loan balance.
Automating your repayments so they come out as you are paid will also prevent you from spending this money on other things.
Top tip: If you are making monthly repayments, a simple way to get ahead on your mortgage is to switch to fortnightly repayments. Putting half of your monthly repayment into the bank every two weeks reduces compounding interest and, because there are 26 fortnights in a year, you will make an extra repayment every 12 months.
3. Use an offset account
Placing your salary and savings into your offset account is a simple way to get ahead on your mortgage. An offset account operates like a normal transaction account, but the money in it is offset against the amount owing on your mortgage.
For example, if you have $150,000 owing on your home loan and $8000 in your offset account, you will only be charged interest on the sum of $142,000, rather than $150,000. Over the length of your loan, these savings can reduce the amount of interest you pay by tens of thousands of dollars.
Top tip: If you have a loan with an offset account and you don’t use this feature, consider switching loans, as you are probably paying fees for a feature you don’t need.
4. Consolidate your debt
Managing a mortgage becomes difficult when you have multiple repayments to stay on top of. If you have a car loan, personal loan or credit cards, consolidating will streamline everything into a single payment.
Top tip: Sources of finance such as a personal loans and credit cards generally incur high interest. Consolidating these debts into your home loan reduces the interest you are paying.
5. Regularly review your mortgage
Whether your circumstances have changed or you want to know if you could be getting a better deal, it’s worthwhile reviewing your home loan regularly.
A cheaper home loan or one with better features can help you to work towards your financial goals. To see if there are cheaper rates available, use our rate comparison tool.
Top tip: It’s easy to set and forget your home loan, so make a reminder to review it every couple of years.
Related: How to review your home loan
If you would like to learn more about finding the right mortgage and paying it off sooner, contact me to discuss the loans currently on the market and ways to get ahead. – Trevor