With Australian home loan interest rates being the lowest they’ve been in over 50 years, now is the time to take control of your home loan and to reduce your debt faster. There are a number of ways you can do this, let’s look at these now.
Know What Rates Mean
Many borrowers ask whether they should take out a fixed or variable rate home loan. In order to answer this borrowers need to look at their own personal and financial circumstances.
Borrowers should choose a fixed rate home loan if they’re seeking an easier way to budget and to reduce their financial risk. But, they also need to bear in mind that they won’t gain any benefit from interest rate drops, and any extra home loan repayments they make above the minimum may incur a penalty. Plus, if they terminate the home loan before its fixed rate period has ended then they may have to pay break costs, which can add thousands to the cost of their home loan.
A variable rate home loan, on the other hand, is ideal or borrowers who are looking to take advantage of rate drops and who want to pay off their home loan faster by making additional payments. Just be mindful that you may feel greater financial pressure if interest rates increase.
If you’re uncertain of which rate type is suitable for you, but would like the best of both worlds, then ask your lender if you can take out a split home loan. These types of home loans allow you to fix a portion of your home loan and to leave the remainder variable.
Use a Redraw Facility
A redraw facility is a home loan feature that preserves any extra payments you make on your home loan over the minimum amount required. These extra payments accumulate overtime and can be drawn on at a later date if you find you need extra money. For example, you may want to renovate your home, pay for schooling or go a holiday.
A redraw facility is a beneficial way of saving as it allows you to reduce your home loan principal faster and saves you on interest payments. However it is important to note that redraw facilities have some restrictions, such as the amount you can redraw over a set time, and how you can redraw your funds. Most withdrawals can be made online or in-person at a branch.
Setup an Offset Account
An offset account is a savings account that is directly linked to your home loan. The amount that is held in your offset account reduces your home loan interest, which is calculated daily. However for an offset account to work effectively you need to keep a sizeable amount in your account at all times.
Review Your Existing Home Loan
Many borrowers have a ‘set and forget’ philosophy when it comes to home loans. We typically take out a home loan, and then we forget about it until we’re ready to sell. However, to ensure you’re getting the best deal you need to check your home loan annually. This means checking your interest rate and home loan features, and then comparing these to other home loans on the market.
If you’re not using your home loan features then either devise a way to start or ask your lender if you can remove these features and get a better rate. Why? Well in most instances, home loan features incur a higher rate interest rate.
Consider Switching Lenders
If you have a variable rate home loan and you find that your existing lender is not passing on rate cuts, or offering you the best deal they possibly can, then approach them and ask for a better rate. If they don’t want to make changes for little or no cost, then consider taking your business elsewhere.
At present the home loan lending market is very competitive and you can possibly save yourself more. Of course, before you make any lender switch make sure you do your homework and compare rates, home loan features, and fees and charges. Then calculate your costs depending on your existing home loan type and weigh-up if you’d be better off elsewhere.
Consult a Mortgage Broker
A broker allows you to compare home loan products and can find you the best deal based on your personal and financial circumstances. Bear in mind that a broker is limited to comparing the lenders loan products on their lending panel. A broker is paid a commission by a lender when they sign you up for a home loan. Hence you don’t have to pay a fee to your broker – the service is cost and obligation free! It is best to always ask questions of your broker and to get them to disclose why they have recommended specific home loans. In theinterest of both parties, the goal is to genuinely offer you products that are suited to you and your circumstances.
Are you seeking to master your home loan and need advice? Then contact eChoice. We can help you find the right home loan for YOU.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!