A home loan is a long-term commitment that spans over 20 to 30-years and it can cost you hundreds of thousands of dollars in interest, if you’re not smart. But, for those who are smart, paying off your home loan principal sooner, rather than later, can save you thousands over the life-time of your loan, and shave years of your home loan term. Let’s look at how you can join the smarter league of home loan holders.
1. Use an Offset Account
An offset account is linked to your home loan and the amount held in this account reduces your principle. This means that you only pay interest on the residual amount. For instance, if you have a $150,000 home loan and you have $30,000 in your offset account, then you’re only paying interest on $120,000.
2. Pay Your Home Loan More Frequently
Your lender typically asks that you pay your home loan monthly. But, in most cases you can pay more frequently without incurring a penalty. If your lender doesn’t mind you paying your home loan weekly or fortnightly, then ask to change your payment frequency. This will then allow you to make an extra monthly payment per year as some months are made up of 5-weeks instead of 4.
3. Pay More Than the Minimum Amount
The home loan payment that your lender asks for is typically the minimum that you need to repay per month. In most cases, you can make additional payments without incurring a penalty. Therefore by paying an extra $20, $30, or $40 off a week you can reduce your home loan principal and the amount of interest that you’re paying.
4. Lump Sum Payments
If you come into money then ask your lender if you can make a lump sum payment without incurring a penalty. If you can then put this extra money on your home loan. Tax returns, an inheritance or lotto win can drastically reduce your home loan principal and save you money long-term.
If you think that your interest rate is too high then you can shop around for a lower rate. Ideally, you need to find a home loan that is at least 1 percent cheaper than your existing rate. This makes the switch financially viable. You also need to calculate your exit fees and any application fees, and then work out whether you’ll save or break even over the term of your loan.
If you’re looking to reduce your home loan repayment and need help then contact eChoice and find the right home loan for YOU today.