Now is a great time to start paying off home loan faster
FOLLOWING some of the recent interest rate cuts by the Reserve Bank of Australia, now is a good time to think about making further repayments on your home loan.
There are many advantages to repaying your home loan quicker, giving yourself an additional financial freedom.
Not only will you own your home sooner, you can avoid hefty interest payments and may be able to access built up equity to use as a security to upgrade your home or purchase an investment property.
When looking to pay off your loan sooner, one option might be to make more frequent repayments, for example making repayments on your loan fortnightly instead of monthly.
There are 12 calendar months in a year and 26 fortnights, so if you were to repay fortnightly you would end up making the equivalent of 13 monthly repayments each year.
It is certainly worthwhile investigating if your home loan interest rate has dropped.
Gladstone Mortgage Choice franchisee manager Kellie Bebendorf said it is often a good idea to have your home loan check up.
"We do a free home loan check up for people," she said.
If you find this to be the case then it's a good idea to continue repaying your loan at the pre-rate cut levels, to reduce the overall life of the loan and interest payable.
"As a result, more money can then be put back in people's pocket, rather than the banks," Ms Bebendorf said.
Making a lump sum payment (big or small) into your loan can also make a substantial difference to repaying the loan sooner.
Take a loan of $300,000 at a standard variable rate of 7% over 30 years; If a borrower who was one year into their loan term contributed $1000 from their 2012 tax return into the above mentioned loan, this would reduce the overall term by three months and the total repayments by approximately $6,509.
Imagine the difference that doing this every year or with a higher amount would make!
All in all, it really comes down to finding a repayment strategy that works for you and meets your individual needs.
Those with an existing loan should give themselves a home loan health check every year or two. It may be that another loan offers a lower interest rate and/or fees.
However, a more affordable loan may have fewer features, so carefully weigh up the emotional and financial pros and cons of all options.