The path to homeownership is paved with one of life’s most significant financial commitments: a home loan. Once you traverse this road, you’re likely to spend the coming years, perhaps even decades, making repayments and gradually whittling down the loan balance. The enormity of this responsibility can feel overwhelming, but it needn’t be. There are several ways you can save on your home loan, both at the application stage and during the loan repayment process. Today, we’ll explore five key strategies that could save you thousands of dollars over the life of your home loan.
1. Accelerate Your Repayment Timeline
Among the myriad of strategies to save on your home loan, a frontrunner emerges: strive to pay off your loan balance as soon as feasible. When you structure your loan repayments as principal and interest, you begin to chip away at the principal from the get-go. This approach is critical because the longer the life of your loan, the more you’ll shell out in interest over the duration.
One popular strategy for early loan payoff is paying on a fortnightly basis rather than monthly. Here’s why: there are 26 fortnights in a year but only 12 months. Consequently, you end up making the equivalent of an extra month’s worth of payments every year when you opt for fortnightly payments. This tactic is particularly suitable for those on a tight budget.
However, keep in mind that paying off your loan early might incur fees. Check the terms and conditions of your loan to ascertain if this applies. While you’re at it, perhaps it would be worth checking out home loan offerings from smaller, more agile lenders. Companies such as Wisebuy Home Loans Newcastle have a reputation for providing competitive loan packages with a more personalised service than their larger counterparts.
By funnelling extra money into your mortgage repayments, you can significantly reduce the interest you pay both in the short and long term. The net effect? You stand to save thousands, possibly even tens of thousands, on interest repayments.
However, making extra repayments can be challenging. So, to simplify the task, it’s worth scrutinising your loan terms to see if there’s a cap on additional repayments. Notably, this constraint typically applies only to fixed-rate mortgages during the fixed term.
2. Leverage Negotiation Skills
Before applying for a loan, it’s crucial to negotiate with potential lenders—an art that can yield substantial savings. For this, comprehensive research is vital. Understand the different rates, features, and benefits that various lenders provide.
To make an informed comparison, consider exploring the offerings of popular lenders. After which, engage with a mortgage broker about the loan products that intrigue you. Mortgage brokers possess the prowess to negotiate with lenders on your behalf, potentially securing a favourable rate and beneficial features for your loan.
3. Harness the Power of Offset Accounts
Offset accounts are increasingly common, and most lenders now offer them as an option with certain loans. An offset account is a transaction account linked to your loan. The balance in this account is used to ‘offset’ the principal, which lowers the interest charges. In most cases, offset accounts provide 100% offset.
Here’s how it works: If you have a $350,000 loan and $50,000 in an offset account, you’ll only be charged interest on $300,000. If you can maintain a sizeable sum in your offset account, you could save thousands on interest repayments.
However, it’s important to note that some offset accounts carry account-keeping fees. As such, it’s prudent to consider these costs against the potential benefits before making a decision.
4. Utilise Loan Packages
Loan packages can be a boon for potential home buyers. Lenders frequently offer packages that comprise discounted rates, cheaper insurance, credit cards, access to a financial planner, and more. These packages usually entail a single annual fee and allow you to borrow at a slightly discounted rate.
However, loan packages are not one-size-fits-all. If you don’t require the added features, a package might not be the right fit for your circumstances. But for many borrowers, these packages represent an appealing deal and are worth considering when applying for a home loan.
5. Regularly Review Your Home Loan
Keeping a vigilant eye on your home loan is especially important if you had a low deposit or less-than-ideal credit when you initially applied for the loan. After a period of timely repayments and credit history improvement, you may find that you qualify for a more competitive rate with another lender.
Remember, different lenders offer different rates, and it’s possible your current rate is above market norms. While the difference might seem insignificant, over time it can amount to substantial savings.
Switching loans doesn’t have to be an arduous task, especially with a broker’s assistance. You might even contemplate refinancing your loan with the same lender, depending on their available loan products.
Conclusion
Purchasing a home is a significant financial decision. But with the right strategies, the journey can be less daunting and more rewarding. From making accelerated repayments to negotiating better terms and exploring innovative solutions like offset accounts, there are myriad ways to save big on your home loan. A little research, negotiation, and an open mind can go a long way in minimising the cost of your home loan and bringing you one step closer to homeownership.
