by Hannah Tattersall, uno Home Loans
There’s a lot of advice out there for mortgage holders trying to pay down their loans. Budget, budget, budget; make extra repayments; consolidate your debt into one loan. It’s all very well to heed the advice of others, but when it comes to making a game-changing difference to paying off your mortgage, which ones actually work?
Hack #1 – Refinance your mortgage
With low interest rates and a swathe of lenders offering competitive rates to mortgage holders, now is a great time to check you’re getting the best deal on your home loan. Research by Core Data, commissioned by online mortgage broker uno Home Loans, found that 40% of Australians with mortgages don’t know what interest rate they’re paying on their home loan. If yours starts with a 4 or a 5, check out uno to see if you could be getting a better deal on your rate. uno works with 20+ lenders – including the big 4 – and can search through thousands of rates to find one that best suits your situation.
Hack #2 – Make repayments weekly or fortnightly rather than monthly
Lenders tend to calculate your repayments on a monthly basis. What some people might not know, however, is that it can be more financially beneficial to make repayments as often as possible. Going from a monthly to a fortnightly or even weekly repayment schedule will help you pay off the loan faster and save on interest. I’ll show you how. Let’s say you’re paying $1200 each month at a specified interest rate. As the year has 12 months, you’ll end up paying $14,400 by the end of the year. If you divide those monthly repayments into four and pay $300 every week, you’ll actually make 52 repayments a year, which amounts to $15,600 at the same annual interest rate. So you will have made one extra month’s worth of repayments each year. Winning!
Hack #3 – Round up your repayments
Making extra repayments when you can – work bonus, birthday money, for example – is a great way to reduce your principal and interest and shave a few months off your mortgage. But another way to do it is by increasing your weekly repayments, even by just a small amount. If your weekly repayments are an odd number such as $356 and your lender allows you to make extra repayments, why not round the amount up to $400? The extra $44 per week could save you thousands over the life of the loan – and shave years off your home loan.
Hack #3 – Set up an offset account
An offset account is much like a transaction account that’s linked to your mortgage. You can set it up to receive your salary and any other income you earn. The bank or lender then offsets the balance in your account against your loan balance, which means interest is only calculated on the remaining loan balance. This can save you a lot of money over the long term. With an offset account, you can still access your money on a day-to-day basis, but the more money you have in there – and the more that is offset against your mortgage – the better off you’ll be. An offset account often has fees, but some lenders do offer no fee offset home loans.
Hack #4 – Pay your bills on the day they are due
If your mortgage repayments are coming from an offset account or redraw facility, another great way to save money is to pay your bills on the day they are due – rather than the week before or a few days before. Leaving your income in your account for an extra few days builds up more cash for you to offset your mortgage interest against. Plus, when you can set up bill payments online using online banking and direct debits, it’s not a difficult thing to do at all.
Hack #5 – Make the same in repayments even if interest rates drop
When interest rates drop – or remain low as they are have been for the past two years – it’s tempting to enjoy the decrease in mortgage repayments and spend your money elsewhere. If you’re on a variable rate, however, why not continue to make repayments as you were before, and pay off your debt faster. You’ll be grateful for it in the long term.
Hannah Tattersall is Content Editor at unohomeloans.com.au – the online mortgage broker.