How smart is your home loan?

Have you noticed that there seems to be quite a few advertisers at the moment saying that they can show you how to reduce the interest on your home loan, or help you pay the loan off earlier?

As you may have already realised, many of these advertisers are actually more focused on selling investments than they are on your current home loan.

The simple fact is that there are really only three things that impact on the cost of your home loan.

So here’s a good question to ask yourself…“When was the last time I got a ‘health check’ done on my current loan to see if it is the best deal I can get?” If it’s been a while, why not pick up the phone to talk to an independent broker about seeing what is currently available?

Of course, if you would like an introduction to an independent mortgage broker who can help you to minimise your interest bill, feel free to call us any time. We’re always happy to help.

1. Repayment frequency.

As a general rule,the more often you make repayments, the more slowly the interest on your mortgage adds up. A common example of this is to pay half your monthly repayment each fortnight, or a quarter of your monthly payment each week. By doing this, you will effectively make an extra month's payment each year.

This tactic also works if you are able to make additional payments whenever you receive a lump sum like a tax refund or a work bonus. Remember, the earlier you make a payment, the more effective it is in reducing your overall interest bill.

2. Loan term.

Again, the general rule is the shorter your loan term, the less interest you will pay over the length of the loan. For example, if you take out a $400,000 loan at 5% for 30 years, your repayments will be around $2147 per month and your total interest will end up being $373,000. However, if you took that same loan out over 25 years instead of 30, your monthly repayments of $2338 would reduce your overall interest bill to just over $301,500…a reduction of $71,500!

3. Interest rates.

Obviously, the lower the interest rate on your mortgage, the lower the amount you need to pay each month before you start reducing the amount you actually owe. But don’t forget to factor additional fees into the equation when working out what your loan is costing.

Disclaimer: The contents of this article are believed to be accurate at the time of posting. Any advice here is of a general nature only and has not been tailored to your personal circumstances. Please seek professional advice prior to acting on this information.