How to spend less on your home loan
Raising a family often means shifting priorities. Juggling school or child-care runs with work commitments, while paying for a never-ending range of expenses.
But what if there was a simple way to free up some significant monthly savings? Enough for a much-needed family holiday, a bathroom makeover – or even that education fund you keep talking about?
Your home loan could be the answer. And the good news is, it’s not as hard as you might think.
The cost of complacency
On average, Australians spend about 25% of their monthly disposable income on their home loan. That’s likely to be your biggest single expense – and it’s one you have control over.
In this competitive interest rate environment, you need to be aware of what your current rate is, and what’s available.
Yet Pocketbook’s analysis of 200,000 users in 2016 found as many as 90% of Australians don’t know what their home loan rate is – and some are paying as much as 1.75% more than they should.
Let’s put that into perspective.
If you have a $500,000 home loan , and you’re paying 1.75% more than the best rate available to you, you could be paying around $6,000 a year more than you need to in interest rate payments. That’s over $500 a month – which could certainly be put to better use in your life. It could soon add up to a family holiday, the first year of school fees – or even a down payment on an investment property.
One of our clients created offset accounts in the names of each child. They split the monthly savings between those accounts, saving for the kids’ future education while reducing the interest on their home loan – and eventually paying the loan off sooner.
Supercharge your savings
After refinancing, savvy homeowners can choose to keep paying the same, higher, monthly repayment as on their old home loan – and by paying that little bit extra, they can shave years off their loan.
That extra payment is always available to you, in your offset account. So if you need it later, you can spend it – but in the meantime, it’s saving you more on your interest. If you keep adding $500 extra a month to your offset on that $500,000 loan, you could pay it off eight years sooner – and save an extra $100,000 in interest. With loan terms of 30 years, we often assist clients to work out how much their loan repayments would be over a shorter period – say 20 years – and increase their monthly repayments to that amount.
What’s the downside?
These days, there are very few costs involved in refinancing, particularly when weighing up the future savings. But the process does take time. While pre-approval typically happens within one business day, there’s also a credit assessment, property valuation, documentation and contract exchange involved.
In theory, you might spend a few hours deciding on your options, tracking down payslips and bank statements, and signing documents. But in reality, you may save thousands of dollars in the short term, and much more in the future.
That sounds like a reasonable trade-off – and a good reason to add refinancing to your list of priorities.
If you’d like to see how much you could save and pay down your loan much quicker, call our specialist team today. 0467 198 549