You can do this by considering our top tips to make your Loan work harder for YOU
As you prepare for end of Financial Year and submitting your tax return, it is an opportunity to check in on your finance. Is your mortgage working as hard for you as it could be?
With all the interest rate rises in recent years and rising cost of living, getting savvy and identifying where you can make savings can make a big difference!
LOAN REPAYMENT FREQUENCY
Are your loan repayments monthly? Or even fortnightly? Did you know that switching from monthly to weekly home loan repayments can offer several potential savings and benefits!
Interest Savings:
By making more frequent payments (weekly instead of monthly), you reduce the outstanding principal balance on your loan faster. Since interest is usually calculated daily on the outstanding balance, making more frequent payments can lead to slight savings over time. This is because the average daily balance is lower with weekly payments compared to monthly payments.
Faster Loan Repayment:
Weekly payments can accelerate the repayment of your loan. Over the course of a year, you make 52 weekly payments versus 12 monthly payments. This means you make the equivalent of one extra monthly payment per year, which can significantly reduce the term of your loan and the total interest paid over the life of the loan.
Other ways it can benefit you…
Improved Budgeting: Some borrowers find it easier to budget with weekly payments, as it aligns with their income cycle (especially for those who are paid weekly). It can also help in managing cash flow more effectively since you are making smaller payments more frequently.
Reduced Interest Accumulation: Because interest accrues on the outstanding balance, more frequent payments can reduce the impact of compound interest. Even though the difference might seem small on a weekly basis, over the long term, it can add up to considerable savings.
Flexibility and Discipline: Weekly payments can instil discipline in managing your finances. It forces regular engagement with your loan and keeps it at the forefront of your financial planning.
OFFSET YOUR LOAN WITH YOUR TAX RETURN
If you are due a tax return this financial year, consider placing it in an offset account of your mortgage. An offset account operates like a transaction account, but it also reduces the interest you pay on your loan because interest is only charged on the mortgage balance less the offset balance.
If you haven’t got an offset account on your loan, check if you can link an offset deposit account to your mortgage. You might even be able to link multiple offset deposit accounts.
Having multiple deposit accounts can assist with your budgeting, particularly if you are saving up for big ticket items (like an overseas holiday or renovations) you can have your savings work for you by having them offset your mortgage balance.
The combined balance of all your offset accounts will reduce interest that you pay on your loan. It’s very easy to withdraw money from offset deposit accounts too, most Lender’s provide a Visa debit card to convenient withdrawal.
Refinance Offer
$2,000 Cash back offerREVIEW YOUR MORTGAGE, IS IT WORKING FOR YOU?
If you hit hurdles with your current lender in implementing saving practices like those mentioned above, it may be time to consider refinancing your mortgage. In any case, it is good practice to review your finance annually because interest rates can fluctuate amongst other things.
Your financial situation or goals may change over time, so reviewing your mortgage annually gives you an opportunity to consider whether your current loan terms still align with your financial objectives. (duration or type of mortgage)
Many Lenders are offering refinance opportunities like cashback offers and lenders are frequently changing their refinance offers. Therefore, if you are reviewing your mortgage annually, you can take advantage of such offers that you otherwise may not have been aware of.
It is important to run the numbers and consider any exit and setup fees involved to establish if refinancing is in your best interest. The features of a loan are also very important to consider, particularly if you want to make your loan work harder for you such as:
Lender Policies: Not all lenders may offer the option to make weekly payments and some loan products may not allow an offset account.
Administration and Fees: Some lenders may charge fees if/when you want to change your payment frequency or to add an offset account. You should weigh any potential fees against the savings.
