You need to tackle your home loan ... TODAY!
Many homeowners and investors ‘set and forget’ once they’ve purchased a property and locked in a home loan. They cruise along, paying the minimum monthly payment, heading towards the goal that in 20, 25 or even 30 years time, their home will be paid off in full.
But, there’s a better way to get on top of your mortgage – and there’s no time like the present to get started on saving money.
Take advantage of low interest rates
Interest rates are just coming off an all-time low, and we know they can’t stay this low forever. If you can maximise your repayments while rates are low, more of what you pay will be coming off the principal, and less will be going towards interest.
Paying your loan down as much as possible now has two advantages: you’re saving yourself interest in the long term, but also by paying down the principal, any future rate increases won’t hit you as hard.
The difference even a small interest rate hike can make to the average home loan is huge – on a $500,000 mortgage, an increase of 1% in interest would see your principal and interest repayments jump by over $300 a month!
Are you really getting the best deal?
Lenders, just like telcos and private health insurers, rely on your laziness and inaction to keep you locked in to deals that are far from perfect. They know that most people sign up and switch off, and they’re not about to notify you when they (or their competitors) bring out a better offer or a lower interest rate.
So, it’s up to you to keep on top of your mortgage and do your research. Every 12 to 18 months, do a home loan health check. Are you getting the best interest rate possible? Does another lender have something extra to offer, like an offset account? What about rewards points or programs?
You could save a lot of money, and be eligible for other benefits if you shop around. Before switching lenders, talk to our mortgage brokers about the deals in the market that could suit your situation – the Multifocus finance team is always ready to chat with you.
Reduce home loan debt before tackling investment debt
Unlike debt for investment purposes, the mortgage on the home you live in is NOT tax deductible.
So, it makes sense to pay off your home loan as quickly as possible, rather than paying down your investment debts. That way, you can minimise the interest you’re paying, while taking full advantage of the tax concessions available to investors.
If you get a windfall, such as a promotion or tax refund, channel that into your mortgage and watch your home loan principal shrink.
Know that small changes can make a big impact
Even paying back a little extra has a big impact over the life of your loan – that’s the beauty of compound interest, a small amount every month adds up.
It’s something we’re all guilty of – spending a few dollars here and there, maybe on a coffee and lunch, or a new pair of jeans that we don’t really need – because we think ‘What difference can this small amount of money make to a massive debt like my home loan?’.
The truth is, it can make a huge difference, and can lead to you being mortgage-free much faster. For example, if you were to cut back on one lunch and coffee purchase at a cost of around $12 a week, and take lunch from home instead, you could put that extra $50 per month into your home loan.
On a mortgage of $300,000, paying an extra $50 a month would shave over one year off your loan, and save you over $12,500 in interest!
Imagine the inroads you could make on your loan if you made several small changes and put the savings into your mortgage? Make an extra payment of $500 per month, and you’re looking at a massive $80,000 in interest saved, with your home paid off 8 years faster. You can calculate the savings you could make, based on your loan amount, interest rate and extra repayments you plan to make, by using extra repayment calculators such as this one from Westpac.
The key message is, stop procrastinating and act now: every month you delay taking action to tackle your home loan is a month you’re missing out on these enormous benefits and savings – so what are you waiting for?
If you have a home loan, whether for an investment property or as a homeowner, feel free to contact us at Multifocus Properties and Finance for an obligation-free chat. We work with a range of lenders to help our clients get the best deal; to talk further about how we can help you save money on your mortgage, call our finance team on 1300 905 680.