If you're a Greensborough homeowner looking to pay off your home loan faster and save money on interest, extra repayments could be your secret weapon. With the right strategy, you can significantly reduce both the life of your loan and the total amount you'll pay over time.
As mortgage brokers who access Home Loan options from banks and lenders across Australia, we've seen how effective extra repayment strategies can transform our clients' financial futures. Let's explore how you can make your mortgage work harder for you.
Understanding how extra repayments work
When you make additional payments on top of your regular mortgage repayments, that extra money goes directly towards reducing your loan amount. This means less interest accumulates over time, creating a snowball effect that can save you substantial money.
For example, if you have a $500,000 home loan with a variable interest rate of 6.5% over 30 years, making an extra $200 monthly payment could save you over $100,000 in interest and reduce your loan term by approximately 7 years.
Strategy 1: Use an offset account
An offset account is a transaction account linked to your home loan. The balance in this account offsets against your loan amount when calculating home loan interest rate charges. If you have $50,000 in your offset account and a $400,000 loan, you'll only pay interest on $350,000.
Benefits of offset accounts include:
- Reducing interest without losing access to your money
- Flexibility to withdraw funds when needed
- Tax advantages as you don't earn taxable interest
Strategy 2: Make fortnightly repayments
Instead of making monthly repayments, consider switching to fortnightly payments. By paying half your monthly amount every two weeks, you'll make 26 payments per year (equivalent to 13 monthly payments). This extra payment each year can significantly reduce your loan term.
This approach works particularly well with variable home loan rates, as you'll see immediate benefits when interest rates are higher.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Premier Path Finance today.
Strategy 3: Apply windfalls and bonuses
Whenever you receive unexpected money like tax refunds, work bonuses, or inheritance, consider putting a portion towards your home loan. Even small amounts can make a meaningful difference over time.
Before applying windfalls, review your financial situation to ensure you maintain adequate emergency funds and haven't overlooked other high-interest debts.
Strategy 4: Review your loan structure regularly
The property market and interest rate environment change constantly. What worked when you first applied for a home loan might not be optimal now. Consider:
- Switching between fixed interest rate home loan and variable options
- Exploring interest rate discounts with your current lender
- Investigating whether refinancing could improve your borrowing capacity for extra repayments
- Reviewing your loan to value ratio (LVR) to potentially remove lenders mortgage insurance (LMI)
Timing your extra repayments strategically
When calculating home loan repayments, timing matters. Making extra payments early in your loan term has the greatest impact because you're reducing the principal amount on which compound interest is calculated.
For those buying a home or considering refinancing, get pre-approved first to understand your borrowing capacity. This knowledge helps you plan realistic extra repayment strategies from the start.
Choosing between fixed and variable rates for extra repayments
Both fixed interest rate and variable interest rate loans can benefit from extra repayments, but there are differences:
Variable rate loans typically offer more flexibility for extra repayments without penalties, making them ideal if you plan to make regular additional payments.
Fixed rate loans may have restrictions on extra repayments, often limiting additional payments to $10,000-$20,000 per year without penalties.
Before implementing extra repayment strategies
Before committing to extra repayments, ensure you've considered:
- Your complete financial situation, including emergency funds
- Other debts with higher interest rates
- Upcoming expenses like stamp duty if you're planning to upgrade
- Your home equity position and future borrowing needs
The Home Loan application process and streamlined application process available today make it worthwhile to regularly review your options. Having current bank statements and understanding Home Loan Rates across different lenders can help you make informed decisions.
Extra repayments aren't just about paying more money – they're about strategic financial planning that aligns with your long-term goals. Whether you're just starting the application process for your first home or you're an experienced property investor, these strategies can help you build wealth and achieve financial freedom sooner.
Ready to explore how extra repayment strategies could work for your situation? Call one of our team or book an appointment at a time that works for you.
