PAY OFF YOUR HOME LOAN FASTER & SAVE MONEY:
Reducing your loan term is basic enough; there are simple yet effective changes you can make that cause a big difference 'over time'. Remember: these changes seem small, but you must look at it through the lens of compound interest over the life of your loan.
SMALL CONSISTENT EXTRA REPAYMENTS:Problem is most people think small consistent repayments like $25 per week won't do much.
You got to think through the lens of compound interest over time. The comparison on the graph is from a $500K loan with $25 per week extra repayment for the life of the loan. We'll get to this in just a moment. Make the effort to deposit lump sums like tax returns & bonuses into your loan. Through the power of compound interest this will magnify over time.Time for an example: Let's repay an extra $25 per week over the life of a $500K loan. Would you believe this tiny sacrifice creates an interest saving of $32K & over 2.5 years in repayments. That's 2.5 years you don't have to go to work to pay interest to your lender! Pay fortnightly, not monthly:A simple change, but well worth it. There are 12 months in a year but 13 four-week cycles. Why is this important? When you switch to fortnightly intervals you are essentially paying off an extra month per year!
Remember: it matters when you factor in compound interest over the life of the loan. CORRECT LOAN TYPE:Choose a loan that allows extra repayments without penalty or excess fees to set it up. Make sure you have access to these "extra repayments" if you need them in the future, such as redraw or offset. Why does this work? Well, interest is calculated daily but charged monthly. So any money sitting in the account each day will help reduce the loan. This is why sometimes using the interest free period on credit cards is powerful. But, this can also lead to problems if you're not super strict, so maybe steer clear of this option.
But don't offset account's charge big fees? Well yes and no. This is why you should talk to your advisor or mortgage broker to lay it out for you in black and white. You'll usually find the benefits really do outweigh the costs.
These are just a few examples of what you can do to save money on your home loan. As always, I'm here to help if you want me to model it up using your personal circumstances. It can be powerful to see the benefits in black and white.
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