Instead of being paid separate interest on your savings, the value of any cash in an offset account is instead deducted from your home loan balance, with interest calculated on the difference.Īs an example, if you have a home loan of $400,000 and savings of $20,000 in a 100% offset account, the interest you pay will be based on a loan of $380,000. Consider a home loan offset accountĪ home loan offset account is basically a savings or transaction account attached to your home loan. So you’ll make one month’s extra repayment each year without too much impact on your hip pocket.ĭo note, the success of this strategy can depend on how your lender treats monthly versus weekly repayments. That’s equal to 13 regular monthly payments, instead of the 12 monthly repayments your lender will typically ask for. Over the course of a year, you’ll make 26 repayments. Rather than making repayments monthly, you could aim to pay half your regular repayment each fortnight. If making extra repayments isn’t an option, you could try paying more frequently. However, again it could pay to check with your lender whether any fees or restriction apply. You could consider making it an annual habit to pay lump sums into your loan to supersize your interest savings. It could be a great way to get more bang for your buck. On the same $350,000 home loan mentioned earlier, if you had been making the minimum repayments but used a $2,000 tax refund to make a lump sum repayment on your loan could cut up to three months from the loan term and see you save over $3,000 in interest. Using a windfall to make a lump sum payment on your home loan (or in an offset account – more on that later) could dramatically accelerate a loan reduction because the money comes straight off the loan balance. It’s likely money you’ve learned to live without to this point, and if so, chances are you won’t miss money it. Make lump sum payments into your home loanĭo you receive an unbudgeted lump sum of cash each year, like a tax refund or work bonus? These windfalls are a handy source of cash that could help you pay off your home loan sooner. Make it $2 a day extra and you could save $10,717 in total interest and cut 15 months from that 25-year loan term. Not a bad result for less than the price of a daily cappuccino! However, check with your mortgage provider to determine whether you will need to pay any fees for making extra repayments or for the early termination of your mortgage and factor these into your own calculations.Ĭanstar’s mortgage calculator can show you how making extra repayments could help you pay off your loan sooner. Paying just a dollar a day more into your loan could help you pay it off months earlier.Īs a hypothetical example, on a 25-year home loan of $350,000 with a rate of 3.89% for instance, paying $1 a day extra above the minimum repayment off your loan could see you become mortgage-free up to eight months ahead of schedule, and cut the overall interest cost by as much as $5,500. And you don’t have to pay a lot extra to potentially reap valuable rewards. Regularly paying a bit more off your loan is a simple way you may be able to pay off your home loan faster. If you can, pay a little extra off your home loan each month So don’t be afraid to check out what’s available elsewhere, or to try to negotiate a better home loan rate with your current lender. The thing is, many lenders offer their best deals for new customers. In a hotly contested mortgage market (there are over 4,000 home loans on Canstar’s database), lenders are usually keen for business, so presuming you are seen to be a good candidate (such as having a good credit rating and the means to meet repayments), you may be very eligible for a more competitively priced home loan interest rate. Check you’re paying a competitive rateĪt the time of writing, Canstar data showed there is gap between the highest and lowest home loan comparison rates on Canstar’s database, and if your home loan is at the expensive end of the spectrum, you could be behind the eight ball from the start. Make lump sum payments into your home loanġ.Pay a little extra off your home loan each month.These five strategies could help you get ahead on your mortgage, which could save you a significant amount of money on interest charges in the process: But that doesn’t necessarily mean you have to chip away at your mortgage for this long. Typically, when you take out a home loan you are given a period of 25 or 30 years to pay it off. Here are five simple steps that could help you on your way to owning your home sooner than you expected, by Melanie Tesoriero, from Aussie.
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