Falling interest rates are turning many people's minds to their mortgages, and are creating a big opportunity to pay off their home loans much faster.
While the Reserve Bank left its official interest rate on hold at a record low 1 per cent last week, there are forecasts of at least two more rate cuts to come. With this in mind, now is an ideal time to attack your mortgage.
However, millions of borrowers have no idea what interest rate they are paying, when their mortgage rate last changed, or the best ways to get rid of their largest debt. But you can start with a few small steps.
RULE NUMBER ONE
This is imperative and It’s simple. Just pay extra.
Any money paid off the principal of your loan now will forever be reducing the the interest you pay in the future — meaning you get to pay even more principal in the future as well. If you can pay anything, an extra $50, $80 or $120 every week or fortnight into your home loan, you will repay your mortgage many years earlier.
KNOW YOUR RATE
The best way to work out if you’re paying too much for your mortgage is to understand what your interest rate is and what the competition offers.
Lenders often change their tactics, aggressively chasing new business with reduced fees and lower interest rates, but other times not. You might think that long term your bank will look after you but recent findings suggest otherwise.Seeking help from a licenced credit adviser like EquityLend can help clarify what’s happening. Ask your lender for a better deal — or ask your broker to do that for you. If they won’t give you a better deal, look for a better alternative is and consider switching.
NO SILLY SPENDING
A recent Household Financial Waste Report found that Australian households were wasting $1.8 billion a year on gym memberships alone. Other wastage uncovered included $930 million of unused and unreturned clothing purchases, $621 million in unnecessary credit card interest and $332 million in unused gift cards.
But the biggest contributor to household financial waste was unused food products, at $9.1 billion.
Be aware that you might be wasting money on in your household budget on unnecessary items that you could be putting towards mortgage repayments,
PAY YOUR MORTGAGE FORTNIGHTLY
Borrowers are often urged to make their payments fortnightly rather than monthly if they want to save money, but this strategy only works if you divide a monthly repayment into two and pay that every fortnight, taking advantage of the fact that there are two-and-a-bit fortnights in each month.
The slightly lower balance each month you achieve by making fortnightly payments makes a tiny difference, but its really the fact that you're making that extra repayment every year that reduces your loan balance.
Switching from monthly repayments to fortnightly on a $400,000 mortgage at the current 3 per cent could save your around $47,000 and wipe more than 6 years off the length of your home loan. However, studies show almost two in five borrowers still pay their mortgage monthly.
OFFSET AND REDRAW
Put your surplus money into an offset account, where savings are used to reduce the loan principal. Alternatively, put the surplus directly into your loan account that has a redraw facility.
Everyone is saving for something and it doesn't matter what, if you have a home loan, the money is being used more effectively if its in your home loan account that can be redrawn.
HOME LOAN CHECK-UP
Having financial health check once every year is important. Tweaking your current loan or refinancing with another lender to a cheaper rate could save you money. Seeking expert advice is important because a 0.25 per cent savings might mean nothing if other costs were involved.
Follow as many of these simple steps as you can and make a massive difference to your home loan and you will end up knocking years off your mortgage.
Call Jaeneen on 0402 684 199 and get on top of your home loan NOW.