Tips and advice to help reduce the cost of home borrowing
ANZ wants to help customers manage their finances responsibly. With interest rates having increased twice this year, it is worth customers making sure their mortgages are not costing more than they need to. The following are some tips to help save money on home loans.
Ways to save money and help pay off your home loan faster
1) Pay extra from the start
Time is money so it makes sense to pay off your loan as quickly as possible. Paying just $50 above the minimum repayment on a $100,000 variable-rate loan can cut years off the loan term and save you thousands in interest costs. The extra money goes directly to paying off the principal, which means you’re also building equity faster. Some fixed rate loans will also allow you to make extra repayments.
2) Consider a loan package
When taking out a new home loan, you may qualify for a special package offering discounted loan products and low fees. Bundling your personal finances (car loan, credit card, savings account and home loan) can make you more attractive to the lender.
3) Move to no-frills
Whether you are refinancing or taking out a new loan, consider whether you need all the 'bells and whistles' of today's standard loans. In the right circumstances, moving from a standard to a 'basic' loan could cut your interest rate by around 0.4%p.a.
4) Pay loan fees and charges up-front
The less you borrow from the start, the lower your repayments. When saving for your deposit, set up a separate account specifically to cover up-front purchase costs.
5) Skip the honeymoon
Honeymoon loans offer borrowers low interest and low repayments in the first year. The loan then typically reverts to the lender’s standard variable rate. But beware the hidden costs. Honeymoon loans may have stiff exit fees if you want to refinance in the first few years of the loan. The lender’s standard variable rate may also be higher than other lenders, meaning you pay more in the long run. The key here is to do your homework, as not all lenders' 'honeymoon loans' are the same.
6) Consider a mortgage offset account
Mortgage offset accounts are savings accounts that do not earn interest. Instead, they reduce the amount of interest payable on your linked home loan. For example, if you have a $100,000 mortgage and $10,000 in an offset account, you are effectively paying interest on only $90,000. The interest savings can really add up over the life of your loan. The money in an offset account can generally be accessed in the same way as savings or transaction accounts.
7) Move to fortnightly repayments
One of the easiest ways to pay off your loan sooner is to shift from monthly to fortnightly repayments. By doing this, you will effectively make 13 monthly repayments instead of 12, which will reduce the principal more quickly and cut your total interest bill.
8) Put extra income towards your mortgage
Deposit any extra income such as dividend cheques, annual bonus or tax return directly into your loan account. You probably won’t notice the difference in your daily spending but you will notice the difference in your loan balance.
9) Consolidate your debt
Many Australians have multiple debts such as credit card, hire purchase, car loan and housing loans. If this is the case, you may be paying more interest than you need to. Speak to your lender about possibly consolidating your debts under the one umbrella like your housing loan. Then you can put the savings directly into your home loan!
10) Refinance to a more competitive loan
Consider refinancing to a more competitive loan. It’s worth shopping around to find the best deal, then you can put the difference you save between the old and new loans directly onto your loan, thus reducing the interest paid. But be careful. You need to ensure that the savings are greater than the cost of switching to a new loan type. You should also only do this if you are not compromising additional flexibility that you value like portability, offset or the ability to spit the loan. Without this flexibility, additional costs may add up to more than the savings you may on the more competitive interest rate.
